Ministers must accelerate reforms to pension and insurance rules in order to unlock a wave of private investment from the City, the chief of Phoenix Group has said.
Andy Briggs, who heads up the UK’s largest long-term savings and retirement business Phoenix, said that overhauling EU-era Solvency II rules, announced last week by ministers, was a positive start but further reforms were needed to allow cash from the City’s pension funds to flow into long-term illiquid assets..
Money locked up in Defined Contribution pension schemes has typically been shut out from illiquid investments due to capital buffers and restrictions on money management fees.
In an interview with City A.M., Briggs urged ministers to ease such restrictions.
“At the moment, those pension funds just invest in corporate bonds, and they’ll get a return on those corporate bonds,” he said. “A proportion of the pension fund money – given its long term money over multiple decades – could be invested into illiquid assets, maybe up to 10 per cent.”
He added that raised yield from the investments would more than offset the increased costs involved and would like pocket savers an additional 0.7 per cent per year.
“Why shouldn’t pension customers get some of the benefit of that uplift? We need the regulations to allow that to happen and those changes are happening as well in parallel with substitute changes,” he said.
The government has been looking to ease the charge cap on pension fund fees to allow money to flow into assets like infrastructure and smaller private firms via venture capital and private equity investment. The department for work and pensions announced a further consultation on the changes earlier this year.
It comes as ministers and government look to cut red tape governing City firms to spur a wave of investment from the City.
Phoenix was among a host of major insurance firms to cheer amendments to Solvency II rules last week and said it would now be able to pump around £40-50bn in “green infrastructure, levelling-up social housing-type assets” over the next five years.
Amanda Blanc, chief of Aviva, said it was a “very welcome boost for UK investment”.
“We estimate reforms to Solvency 2 will allow Aviva to invest at least £25bn over the next ten years across the UK, including in critical areas such as social housing, schools, hospitals and green energy projects,” she said in a statement.