MPs’ pension fund shuns UK equities

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The pension fund looking after the retirement savings of Britain’s MPs and ministers has given the cold shoulder to UK companies, in spite of efforts by chancellor Jeremy Hunt to funnel more cash into domestic investment.

The parliamentary pension scheme invests just 1.7 per cent of its fund in UK-listed companies, or 2.8 per cent of its overall quoted shareholdings, far less than the average for UK defined benefit pension schemes.

The revelation in the scheme’s annual report to the year ended March 2022 was described as “awkward” by one leading pensions industry figure and highlights the reluctance of funds to invest in UK equities.

Hunt will on Wednesday attend a City of London conference to promote his “Mansion House” reforms, which are intended to divert billions of pounds of pension savings into higher risk, higher growth UK companies.

“The overarching mission is to try to get more British capital into UK equities,” said one ally of Hunt. “It will be good for pension funds, good for British pensioners and great for promising British companies.”

The Treasury declined to comment.

The Parliamentary Contributory Pension Fund is a ‘defined benefit’ plan which means MPs and ministers are promised a pension for life, based on career average salary, length of service and age.

Sir Brian Donohoe, former Labour MP and chair of the trustees of the PCPF, defended the scheme’s investment strategy.

“We have a responsibility to get the best returns possible,” he said. “If that is in the UK then we invest in the UK. If not, we won’t.”

A spokesperson for the PCPF said the fund invested in a range of “productive assets”, including a 10 per cent allocation to UK properties and 10 per cent committed capital in infrastructure funds.

They added: “In common with most large diversified investors, the PCPF has financial exposure to a number of companies, sectors, and geographical locations including the UK.” 

Charles Hall, head of research at the investment bank Peel Hunt, said the investment strategy of the pension fund representing the chancellor and his colleagues at Westminster illustrated the challenge facing Hunt.

Hall, who in September wrote a report on “reinvigorating the UK equity market”, said of the pension scheme for MPs and ministers: “They represent us but they have little exposure to the UK in their pensions.

“It’s not a great example when the government is trying to persuade funds to invest more in the UK when their own pensions are tied up in overseas assets.”

As of March 2022, the parliamentary pensions scheme invested 59.8 per cent of its total assets of £835mn in listed global equities outside the UK, compared with 1.7 per cent in UK quoted equities.

Within the scheme’s quoted equities, UK companies accounted for 2.8 per cent.

Industry-wide data from the government’s Pension Protection Fund showed that UK private sector defined benefit schemes allocated 12.6 per cent of their listed equities investments to UK companies as of 2022.

Tom Selby, head of retirement policy with investment platform AJ Bell, said: “This is an awkward look for the government and a clear demonstration of the challenge ministers face in trying to use pensions to drive UK growth.

“The duty of pension scheme trustees first-and-foremost is to maximise returns for members,” he noted.

Details of the parliamentary pension scheme come as the UK venture capital industry ramps up efforts to unlock billions of pounds in pension capital to fuel growth in the life sciences and tech sectors.

On Tuesday, twenty VC and growth equity firms unveiled a new compact committing them to develop new investment vehicles for pension funds looking to invest in the area, considered higher risk owing to the illiquid nature of the assets.

The VC agreement built on the so-called “Mansion House’‘ compact of July this year where nine of the UK’s largest pension funds committed to invest at least 5 per cent of their default funds in unlisted assets.

The government believes that if the rest of the pension sector follows suit, up to £50bn in capital could be unlocked by 2030.

Last week, the Financial Times reported the UK was preparing to unveil a new investment vehicle overseen by the state intended to turbocharge pensions funds’ investments in high-growth private companies.