Empowering UK Pension Investments in Growing Companies: Chancellor Jeremy Hunt’s Ambitious Plans
Introduction
The Chancellor of the Exchequer, Jeremy Hunt, is set to unveil a series of extensive plans during his upcoming Mansion House speech. These plans aim to channel billions of pounds worth of British pension investments into fast-growing UK companies, with the goal of stimulating economic growth. Hunt’s proposals will include regulatory changes and consolidation of the pensions market to encourage UK pension funds to invest in riskier but potentially high-growth assets, such as early-stage companies. This additional piece further explores the details of Hunt’s plans and their potential impact on the UK economy and retirement sector.
Expanding Investment Options for UK Pension Schemes
Hunt’s plans encompass several areas of focus, including diversifying the range of investments held by UK pension schemes. Currently, these schemes manage approximately £3 trillion of assets, but they are often considered too risk-averse compared to their international peers. The Chancellor intends to address this issue by encouraging pension funds to invest in riskier assets, such as start-ups, infrastructure, and private equity. This strategy mirrors the approach taken by large Canadian pension schemes and Australians, who have successfully achieved higher returns by investing in riskier assets.
Consolidating Pension Schemes into “British Superfunds”
In addition to diversifying investment options, Hunt is considering a proposal by the Tony Blair Institute to consolidate tens of thousands of public and private sector pension schemes into “British superfunds.” These superfunds would invest in start-ups, infrastructure, and other UK companies, further boosting economic growth. The consolidation of fragmented pension schemes would streamline operations and increase the efficiency of pension investments, potentially attracting more capital into the UK market.
Addressing Concerns of Foreign Ownership and Lack of Investment
One of the motivations behind Hunt’s plans is to tackle the growing concern that British companies are increasingly being acquired by foreign entities. This trend is partly due to a lack of investment from British pension funds, which has resulted in companies like Arm opting for a listing on the New York Stock Exchange instead of the London Stock Exchange. By incentivizing UK pension funds to invest in domestic companies, Hunt hopes to reverse the trend of foreign ownership and encourage the growth of British companies.
Government Consultations and Reforms
To ensure the success of his proposals, Hunt plans to conduct several government consultations on changes to regulations governing pension investments. These consultations will cover defined benefits, defined contributions, and local government pension schemes with tens of millions of members. The final shape of the reforms is expected to be finalized in Hunt’s autumn statement. It is worth noting that the Chancellor does not intend to mandate where pension funds should invest their money but rather frame the reforms as an attempt to maximize returns for UK retirees through riskier investments.
Benefits for UK Pensioners and Forward-Thinking Businesses
The Treasury asserts that the Chancellor’s plans will increase returns for UK pensioners by driving investment in the country’s highest growth sectors. By facilitating access to finance and encouraging investment in start-ups, infrastructure, and private equity, Hunt aims to unlock billions for forward-thinking businesses. This injection of capital into high-growth sectors will support their expansion and potentially lead to more UK companies being listed domestically.
Critiques and the Need for Balanced Approaches
Despite the positive intentions behind Hunt’s plans, they have drawn some criticism. Various think tanks have proposed sweeping changes to pension consolidation and risk-taking, but experts caution that these proposals must consider the realities of retirement savings and the operational aspects involved. The Pensions and Lifetime Savings Association, a trade body representing workplace pension funds serving 30 million savers, welcomes the government’s plan for a consultation exercise to ensure a balanced approach.
Summary
Chancellor Jeremy Hunt’s upcoming Mansion House speech will outline his ambitious plans to boost the UK economy by directing billions of pounds of British pension investments into fast-growing companies. The proposals include regulatory changes to encourage riskier investments by UK pension funds, consolidation of pension schemes into “British superfunds,” and incentivizing investments in high-growth sectors. Hunt aims to reverse the trend of foreign ownership and increase investment in domestic companies. The government consultations and subsequent reforms will aim to strike a balance between maximizing returns for UK pensioners and addressing the operational complexity of pension investments.
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Chancellor Jeremy Hunt will use his Mansion House speech next month to outline wide-ranging plans to channel billions of pounds worth of British pension investments into fast-growing UK companies as he seeks to stimulate economic growth.
Options to be set out in several government consultations include regulatory changes to encourage UK pension funds to invest more in riskier but potentially high-growth UK assets, including early-stage companies, and to promote further country consolidation highly fragmented pensions market, Whitehall insiders said.
They added that Hunt was “scrutinizing” a proposal by the Tony Blair Institute, a consultancy, to bring together tens of thousands of public and private sector pension schemes into “British superfunds” that would invest in start-ups, infrastructure and other UK company.
With Britain grappling with persistently high inflation, Hunting he wants to outline reforms to put the country on a faster growth path.
Whitehall insiders said the chancellor would use his Mansion House speech to City of London notables in July to outline proposals to diversify the range of investments held by UK pension schemes managing around £3 trillion of assets, with UK funds seen as too risk averse compared to international peers.
The final shape of Hunt’s plans – which will cover defined benefits, defined contributions and local government pension schemes with tens of millions of members – is expected to be finalized in his autumn statement.
Hunt does not propose instructing pension fund administrators where they should invest their money.
Instead Hunt will frame his reforms as an attempt to ensure that UK retirees can benefit from the highest returns available by investing in riskier assets, including start-ups, infrastructure and private equity, an approach taken by large Canadian pension schemes and Australians.
The Treasury said: “As the Chancellor said to the Budget, we have an opportunity to increase returns for UK pensioners by increasing investment in the UK’s highest growth sectors.
“This will also unlock billions for our most forward-thinking businesses and ensure they have access to the finance they need to grow and get listed in the UK.”
Hunt’s plans come amid growing concern that British companies are increasingly becoming foreign-owned, in part due to a lack of investment from British pension funds.
Some high-profile firms, including Cambridge-based chip designer Arm, have avoided a London Stock Exchange listing in favor of New York.
Since 2008, the proportion of UK shares held by defined benefit funds – which promise savers a secure pension based on salary and length of service – has fallen from around 50% to below 10%. Over the same period, the percentage held in bonds rose from one-third to over 70 percent.
Government officials have in recent weeks examined proposals that would allow employers with defined benefit schemes to more easily access any surpluses they have built up in pension funds through investments in riskier assets such as start-ups and infrastructure focused on the green transition.
Any surplus in the funds could be used by employers to invest in their businesses or to boost pension payments.
“We believe that current regulations have led to a situation where many defined benefit schemes are forced into low-risk, low-return investment strategies,” said Sir Steve Webb, the former pensions minister who presented the surplus proposal to the Treasure .
Hunt is also examining measures to stimulate investment by defined-contribution pension schemes – which make no promises to savers about the level of pension benefits – in private equity and venture capital.
The government consultations are not expected to include proposed changes to accounting rules that have been accused of shifting defined benefit schemes from stocks to bonds.
“There have been some very sweeping proposals from various think tanks over the past few weeks on pension consolidation and risk-taking,” said Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association. , a trade body representing workplace pension funds serving 30 million savers.
“Many of these have failed to take into account the reality of retirement savings or the operational aspects of what is achievable. So if the government plans to do a consultation exercise, that would be very welcome.”
https://www.ft.com/content/8639ccab-ec49-4cd4-a01b-06b87bd9e485
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