By Huw Jones
LONDON (Reuters) – The British government set out further plans on Wednesday to create bigger pension schemes able to invest in UK start-up companies – hoping to boost the economy and buttress the City’s ability to compete with New York in listings.
Ten firms committed in July under the “Mansion House Compact” to voluntarily commit to putting 5% of their defined contribution (DC) pension pots into unlisted companies, or into small firms listed on London Stock Exchange’s junior market, or on rival Aquis Exchange, by 2030.
UK finance minister Jeremy Hunt outlined the next steps on Wednesday, such as creating bigger schemes with expertise to invest in riskier growth stocks and reverse two decades of favouring safer government bonds and global blue chips.
“I will take forward my Mansion House reforms starting with measures to consolidate the industry. By 2030, the majority of workplace DC savers will have their pension pots managed in schemes of over 30 billion pounds, and by 2040, all local government pension funds will be invested in pools of 200 billion pounds or more,” Hunt told parliament.
Hunt said such changes could help unlock an extra 75 billion pounds ($93.46 billion) of financing for high growth companies by 2030, and improve returns for pensioners.
The British Business Bank will set up a new growth fund for schemes to invest in growth companies, and there will be a consultation on giving the Pension Protection Fund a new role to help consolidate direct benefit schemes, he said.
The government also offered a tax incentive for companies to keep defined benefit schemes, rather than selling them off, to invest surpluses in a range of assets.
It plans to increase the expertise and skills of pension trustees to invest in fledgling companies, and an “ambition” for the Local Government Pension Scheme to allocate 10% of assets in private equity.
There are also plans to include open ended property funds and Long-Term Asset Funds, which invest in private assets, in popular retail tax-free individual savings accounts (ISAs) from next April.
The government also wants to allow certain portions of shares – fractional shares – within ISAs.
“This could provide millions of mass market savers and investors to access high performing – albeit often expensive – shares in well-known companies as part of their portfolio,” wealth management industry body PIMFA said.
The reforms will take years to bear fruit and Britain faces a general election, most likely next year, with the opposition Labour Party tipped in the polls to win, though Labour has said it would continue reforming pensions to unlock cash for investment.
“There is no silver bullet and it will be important for this government and future governments to focus on more fundamental reforms to the structure, incentives and regulation of pensions and retail investment,” said William Wright, CEO of New Financial think tank.
The government will also consult on giving savers a legal right to require a new employer to pay pension contributions into their existing pension pot if they choose, meaning people can move to having one pension pot for life.
($1 = 0.8025 pounds)
(Reporting by Huw Jones; Editing by Frances Kerry and Bernadette Baum)