City bosses urge Hunt to boost pension capital into economy

An influential group of City of London chief executives has called on Jeremy Hunt to enact reforms aimed at releasing more investor capital to support UK companies and boost the economy.

In a letter seen by the Financial Times, the UK Capital Markets Industry Taskforce (CMIT) told the chancellor there was a “substantial opportunity to deploy more long-term UK pension capital into the growth drivers of the UK economy, delivering better returns for savers and faster growth for the country”.

The letter from the group — which is chaired by Julia Hoggett, head of the London Stock Exchange — comes ahead of Hunt’s spring Budget on March 15 and amid fears over the competitiveness of the UK stock market.

Technology group Arm and building materials giant CRH this month said they intended to list on the New York bourse, with other London-based companies drawing up plans to shift to the US following concerns over low valuations and liquidity — which some attribute to pension funds’ lack of investment in British stocks.

CMIT noted that support for UK assets by domestic pension schemes and insurers had “diminish[ed] at an alarming rate” to between just 5-6 per cent of their total investment into public and private companies.

In response, it called for a “swift consolidation of pension schemes in the UK, structural incentives for them to then deploy that capital into the UK and a renewed focus on returns rather than simply fees”.

Uniting often small defined benefit and defined contribution pensions in larger schemes could “develop the sophistication required to assess growth investment opportunities”, it said, adding that a starting point would be to consolidate the 86 local government pension funds in England and Wales. Some have already pooled their investments.

The group — whose members also include Schroders chief Peter Harrison and Phoenix boss Andy Briggs — suggested that the Treasury consider tax exemptions to incentivise domestic investment.

CMIT said that if allocations in pension funds returned to the 25 per cent level they were at in 2007, between £847bn and £920bn of pension fund and insurer money would be generated to support to the UK economy.

It added that any reforms would also be a response to moves by other countries to incentivise the deployment of capital into domestic businesses, pointing to the US Inflation Reduction Act and the EU’s proposal to relax state aid rules for green industries and create a European Sovereignty Fund.

The letter, signed by Harrison and Briggs on behalf of the group, also warned that there was no co-ordinated approach across government to financial services reform.

Although the government has committed to a series of regulatory changes as part of the package of so-called Edinburgh reforms, many City executives want faster action. Some have said defined contribution pension schemes should be made to invest a slice of their assets into early-stage companies.

Nicholas Lyons, the City’s Lord Mayor, told the Financial Times last month that he had held talks with the Treasury about forcing pension funds to invest in a proposed £50bn growth fund.

“I would like mandatorily to have 5 per cent of [every single DC pension] put into that future growth fund,” he said, estimating that there was a pensions pool of about £2tn to draw on.

The Treasury said: “We’re making great progress in opening up defined contribution pension investments to help grow the economy while keeping people’s cash safe.

 “This includes introducing a long-term asset fund structure and pursuing reforms to the pensions regulatory charge cap to allow pension schemes to invest in high-growth companies.”

Sir Nigel Wilson, head of the insurer Legal & General, warned this week that the long-term decline in equity investment by the pensions sector was a significant factor in companies’ “perpetual drift” away from London.

He backed compelling DC schemes to invest in infrastructure and growth equity because otherwise, “it will take too long to change the whole culture in the UK”.