Start-up companies and infrastructure projects could be in line for billions of pounds of investment from UK pension schemes, boosting Britain’s economy and savers’ returns, under proposals unveiled by the Government.
Members of occupational defined contribution (DC) pension schemes may be missing out on potential benefits of long-term investments in ventures such as small firms, housing, green energy and sustainable development, according to Guy Opperman, MP, Minister for Pensions and Financial Inclusion.
With an eye on the assets in occupational DC schemes, which have almost tripled to £60 bn since the start of 2011 and have been boosted by the introduction of automatic enrolment into workplace pensions, the government is said to be exploring changes that would give more than 10 million members of certain pension schemes access to more diverse, innovative investments.
The government is consulting on the reforms to occupational DC pensions, for example, larger DC pension schemes – for example, those with 5,000 or more members – could be required to publish their policies and report every year on how much they allocate to the types of investment the government is keen to encourage.
Opperman said: “Pension schemes could consider opportunities for more innovative, long-term investment offering members the potential for better returns – and the UK economy billions of pounds of funding that can boost jobs, productivity and growth.
“We can do more to attract new investment into important sectors of the economy which would boost employment and help to build stronger, more sustainable communities. At the same time, this approach would give savers more pride in their pensions while delivering good returns.”
Patrick Connolly APFS CFP, Chartered Financial Planner at IFA Chase de Vere said: “It is a sensible approach to encourage pension schemes to invest in a wider range of assets. This will provide additional diversification benefits and also the potential to reduce volatility and improve returns for pension members.
“Pension schemes are able to take a very long-term approach, meaning they can consider illiquid investments which wouldn’t be suitable for most other investors. This could also be positive news for the UK economy, if investment is directed in areas where it can provide growth, employment, innovate. on or infrastructure improvements.”
However, he warns that while the theory seems sensible, pension trustees might not be so keen.
“They may be reluctant to invest in alternative assets of which they have little understanding, may be concerned of taking additional risks on behalf of their pension members and may also be wary of being held accountable if the investments go wrong,” said Connolly.
“While pension schemes can adopt a long-term approach with regard to their investment strategy, trustees may still be concerned about liquidity within their portfolios, meaning that schemes that do invest in a wider range of assets may only do so with relatively small investment amounts.”
The consultation Defined contribution pensions: investments and consolidation is here.