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Chancellor Jeremy Hunt will use his Mansion House speech next month to outline wide-ranging plans for channelling UK pension investments worth billions of pounds into fast-growing British companies as he seeks to boost 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 British assets, including early-stage companies, and to drive further consolidation of the country’s highly fragmented pensions market, said Whitehall insiders.
They added Hunt was “closely examining” a proposal by the Tony Blair Institute, a consultancy, to pool tens of thousands of public and private sector pension schemes into “GB superfunds” that would invest in UK start-ups, infrastructure and other companies.
With Britain struggling with persistently high inflation, Hunt wants to map out reforms to put the country on a faster growth track.
The Whitehall insiders said the chancellor would use his Mansion House speech to City of London grandees in July to outline proposals aimed at diversifying the range of investments held by UK pension schemes managing about £3tn in assets, with British funds seen as too risk averse compared to international peers.
The final shape of Hunt’s plans — which will cover defined benefit, defined contribution and local government pension schemes with tens of millions of members — is due to be set out in his Autumn Statement.
Hunt is not proposing to mandate pension fund trustees on where they should invest their money.
Instead Hunt will frame his reforms as an attempt to ensure that UK pensioners can benefit from the higher returns available from investing in riskier assets, including start-ups, infrastructure and private equity — an approach taken by large Canadian and Australian retirement schemes.
The Treasury said: “As the chancellor said at the Budget, we have the opportunity to boost returns for British pensioners by increasing investment in the UK’s highest growth sectors.
“This will also unlock billions for our most cutting-edge businesses and ensure they can access the finance they need to scale up and list in the UK.”
Hunt’s plans come amid intensifying concern that British companies are increasingly falling into foreign ownership, in part due to a lack of investment by UK pension funds.
Some high-profile businesses, including Cambridge-based chip designer Arm, have shunned a listing on the London Stock Exchange in favour of New York.
Since 2008, the proportion of UK equities held by defined benefit funds — which promise savers a secure pension based on salary and length of service — has fallen from about 50 per cent to less than 10 per cent. Over the same period, the proportion held in bonds has climbed from one-third to more than 70 per cent.
Government officials have in recent weeks examined proposals that would enable employers with defined benefit schemes to more easily access any surplus accumulated in the retirement funds through investing 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 excessively low-risk, low-return investment strategies,” said Sir Steve Webb, a former pensions minister who has put forward the surplus proposal to the Treasury.
Hunt is also examining measures to stimulate investment by defined contribution pension schemes — which do not provide promises to savers on the level of retirement benefits — in private equity and venture capital.
The government consultations are not expected to include proposed changes to accounting rules that have been blamed for defined benefit schemes shifting out of equities and into bonds.
“There have been some very radical proposals by various think-tanks on pension scheme consolidation and risk-taking in recent weeks,” said Nigel Peaple, director of policy and advocacy with the Pensions and Lifetime Savings Association, a trade body that represents workplace pension funds serving 30mn savers.
“Many of these have not taken into account the realities of pension saving or the operational aspects of what is achievable. So if the government is planning to do a consultation exercise that would be very welcome.”