PM & chancellor urge pensions to fund ‘big bang’ investment

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Boris Johnson and Rishi Sunak have called on the pensions industry to invest massively in UK businesses.

The prime minister and chancellor made the bid in an open letter to institutional investors to support the economy.

Both mention UK institutional investors are under-represented in owning UK assets while Canadian and Australian funds are overweight in them.

The letter points out over 80% of UK defined contribution pension funds’ investments are in mostly listed securities, which represent only 20% of the UK’s assets.

It also notes the Covid pandemic represented the biggest shock to the UK economy in 70 years but the country has turned the tide.

“Thanks to the hard work of the NHS, the success of the vaccine roll-out and the resilience of British business, we can now plan for a strong and sustained economy,” the letter said.

It claims the Organisation for Economic Co-operation and Development recently raised its 2021 growth rate for the UK to 7.2%, the fastest among large, developed economies.

The letter goes on to say the government is “determined to Build Back Better” by leveling up the country.

It added: “Whether you are a trustee or manager of a DC or DB pension fund, running an insurance company or advising investors on their investment strategy, we are challenging you this summer to begin to invest more in long-term UK assets, giving pension savers access to better returns and enabling them to see their funds support an innovative, healthier, greener future for their country.

“We know that this will require a change in mindset for many investors that won’t happen overnight, but that is why this change needs to start now.”

Reacting to the letter, Scottish Widows head of policy Pete Glancy said: “The government is right to look to the power of pensions to help Britain recover following the pandemic. Trillions of pounds are invested in UK pensions, which could make the difference as the country sets its sights on a return to prosperity. UK savers will benefit too, as the returns on these long term investments hold the potential to give a much-needed boost to retirement pots.

“We’ve long campaigned for the UK’s pension savings to be unleashed on the country’s infrastructure and economic initiatives, and its promising to see the government acknowledging the obstacles still preventing long-term illiquid investments. We hope this talk turns to action and the government’s call for an investment big bang does not end in a whimper.”

Association of British Insurers director of regulation Charlotte Clark said: “We agree the insurance and pensions sector has a significant role to play in the UK’s economic recovery and we welcome this call from the prime minister and chancellor.

“Analysis has shown that up to £95bn could be freed to boost the UK economy and help tackle climate change if reforms are made to Solvency II. We look forward to working further with the government to loosen this overly-prescriptive regime so that our industry can do more to help.”

AJ Bell head of retirement policy Tom Selby added: “Boris Johnson and Rishi Sunak are clearly banking on retirement investors to deliver an ‘investment big bang’ and power the UK economy back to health.

“Given their long-term focus and scale, defined benefit and automatic enrolment pension schemes might seem ideal candidates to support UK companies. There is also more than a whiff of patriotic fervour in this latest drive to ‘Build Back Better’.

“However, just because the PM and chancellor click their fingers doesn’t mean pension investors will flock to illiquid UK investments in their droves.

“The reality is that pension scheme trustees have a duty to invest members’ hard-earned retirement pots sensibly, considering various factors including risk appetite, cost and, increasingly, impact on the environment.”