Pension funds resist UK government push to invest £50bn in growth projects

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Pension funds are resisting a UK government push to invest up to £50bn in projects and business to support economic growth, saying the country is not an attractive enough destination for more of their capital.

Executives from the £1.3tn sector attending a conference in Manchester on Wednesday said funds looking to support the government’s growth agenda amid high pressure on public finances were encountering myriad barriers.

These ranged from a lack of suitable investment opportunities to concerns about the high-risk nature of the areas the government was most keen for funds to plough their cash into.

Nest, the state-backed workplace pension fund with £33bn under management, said it was reluctant to expand its UK investments into early-stage companies, which had the potential for higher returns but also carried higher risk.

“We want proven business models [to invest in],” Elizabeth Fernando, Nest’s chief investment officer, told the Pensions and Lifetime Savings Association (PLSA) conference.

“Our job is not to support levelling up. It is to build retirement funds.”

In July, nine of the UK’s largest workplace pension schemes committed to invest at least 5 per cent of their “default” fund assets in areas that could potentially support UK growth, such as start-up businesses, infrastructure and assets to support the green transition.

The government believes this so-called Mansion House agreement, brokered by the City of London Corporation, which runs the Square Mile, could unlock up to £50bn in pension capital by 2030 if other UK pension funds follow suit.

The British Telecom Pension Scheme, one of the largest private sector defined benefit schemes in the UK with £47bn of assets under management and 270,000 members, suggested the government could do more to attract retirement funds.

“We are forced to be global,” said Morten Nilsson, chief executive of Brightwell, which manages the scheme’s investments.

“The government has a real opportunity to help facilitate people like us who have slightly less risk appetite. We actually have quite a bit of money to deploy,” he said.

The PLSA, which represents the workplace pension sector, believes incentives the government could offer include allowing tax free dividends on investments by pension funds in UK companies. It also wants additional tax incentives in UK start-ups and companies requiring late-stage growth capital, such as those in the Lifts Initiative that applies to science and tech investments.

The PLSA has called for the government to ensure there is a stream of “high quality” investment assets that meet pension fund needs.

Asked if the government would consider additional tax incentives to boost pension investment in UK growth areas, Andrew Griffith, economic secretary to the Treasury, told the conference that “nothing was off the table”.

However, he added: “One thing a responsible government can do for you is not be promiscuous with public money. So there is clearly a tension in putting out lots of extra incentives.”

He added that everyone “should be bullish (on the UK economy)”.

“It’s a very strong. It’s a fantastic place for capital.”

Chancellor Jeremy Hunt is expected to use his Autumn Statement in November to respond to a range of consultations on proposals to unleash pension capital for UK growth.