The government will look to create more flexibility for pension schemes to invest in illiquid and infrastructure assets, as part of a Budget pledge to help rebuild a ‘greener’ economy after the coronavirus pandemic.
The chancellor’s announcement in today’s Budget, has been welcomed by the industry, although details on how this will operate will only emerge after an FCA consultation on this issue.
Scottish Widows head of policy, pensions and investments Peter Glancy says: “By allowing pension funds to invest in the redevelopment of the country’s infrastructure and economic initiatives, the trillions invested in UK pensions could provide a much needed boost as Britain looks to bounce back from Covid-19.
“This could also be great news for pension savers, whose pension pots would benefit from the returns on these investments in the long run. We await the FCA consultation promised today by the Chancellor.”
Hymans Robertson head of DC investment William Chan approved of this move, but warned it could have an upward pressure on pension scheme fees.
He says: “We welcome the government’s commitment to exploring how they can remove barriers to investing in illiquid assets. We believe some illiquid assets can improve member outcomes at retirement and as schemes become larger, the more traditional problems such as daily liquidity are likely to be less of a challenge.
“As with any investment, it will be critical to explore where these asset types can add most value for members through their pensions journey and not simply regard them as a panacea.”
He adds: “We acknowledge that more investment in illiquid assets investment by DC schemes could make a big difference in society given their potential to contribute to projects such as renewable energy. If we can also use this as a way to engage members in their pension savings – because they can physically see the good their money is doing – we can also potentially encourage them to contribute more to their pension savings.
“There will also need to be a mind shift away from the current focus on low fees and trustees may need to brave and increase fees to members by introducing more expensive asset classes in order to deliver better returns. We’d expect to see downward pressure on fees in other parts of default investment strategies in order to accommodate some of these more costly asset classes.”
Nest, the UK’s largest pension scheme by membership, also welcomed this announcement. Its chief investment officer, Mark Fawcett says: “As the global economy recovers from the pandemic we see potential for certain trends to accelerate, particularly growth companies developing new green technology and digital innovation.
“With 9.8m Nest members, representing nearly a third of the UK workforce, unlocking returns from sectors crucial to solving the climate catastrophe is a win-win for our savers and society.
“We want to give our members a bigger pension in a better world, which is why we welcome government smoothing the way for institutional investors to deploy more patient capital where we see the right opportunities.”
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