UK government to force pension schemes to invest in private markets
The UK government is planning to force pension firms to meet asset allocation targets to private markets, if they do not do so voluntarily.
In its final Pensions Investment Review, published today, the government said it will include a “reserve power” in its upcoming Pension Schemes Bill which would allow it to “set quantitative baseline targets” for pension schemes to invest in private markets.
It said it did not “anticipate” using this power unless it concludes that the pensions industry does not adhere to its recent Mansion House Accord commitment to invest 10 per cent in private markets, with five per cent allocated to the UK by 2030. 17 of the biggest workplace pension providers signed the voluntary agreement.
Read more: Pension firms pledge to invest 10pc in private markets by 2030
Later this year, the UK’s financial regulator, the Financial Conduct Authority (FCA), and The Pensions Regulator (TPR), will launch a joint, market-wide data collection exercise to figure out where pension schemes are currently investing.
Providers will have to hand over information about their asset allocation every year, which the government will use to determine whether it needs to use its reserve power.
Myles Milton, chief executive of Globacap, praised the plans as a strong move to catalyse economic growth. “Historically, investors like pension funds have battled with laborious, manual and time-consuming private market transactions, which often take weeks or months to process,” he said.
Read more: UK finance industry divided over private markets investment pledge
“However, in recent years, private markets have increased funding, boosted liquidity and embraced automation and technology, making them far more accessible and an attractive alternative to public markets.
“Today’s announcement is a huge step in the right direction for pension funds and demonstrates they are prioritising pensioners’ interests as well as economic growth and job creation throughout the country.”
However, some stakeholders are wary of the government’s potential powers to force firms to meet asset allocation targets.
Read more: Calls for UK policy changes to boost pension investment into private capital
Steven Cameron, pensions director at Aegon, which is signed up to the Mansion House Accord, said: “While the imminent Pension Schemes Bill will include reserve powers to mandate, neither industry nor government wants these to be used.”
“We believe that the best way of ensuring good returns for members is for investments to be undertaken on a voluntary, not a mandatory basis,” added Julian Mund, chief executive of the Pensions & Lifetime Savings Association. “Any government intervention to direct how savers’ money is invested is risky.”
The review also confirmed plans to merge some British pension schemes to create around 20 Australian-style ‘mega-funds’ with at least £25bn in assets by 2030.
