Pressure is growing on pension schemes to throw their weight behind reform as the Chancellor prepares to unveil a slew of measures to boost investment in private growth firms next week.
Tech start-ups groups have been lobbying ministers for years to loosen restrictions around pension schemes and use retirement cash to fill a growth funding gap facing smaller unlisted companies.
Top City figures and MPs have been mulling a number of routes to unlock pension cash for private firms, with the Lord Mayor of London Nicholas Lyons spearheading calls for a £50bn future growth fund pooling capital of some of the country’s biggest schemes.
Lyons is understood to be pushing for a deal in which pension schemes voluntarily contribute a portion of their assets to private firms.
Industry figures told City A.M. yesterday that reform needed to be accelerated as pension savers were “losing out” under the current arrangements.
“Overseas pension funds are investing 16 times more than domestic pensions in British venture capital and private equity and reaping the rewards for their members,” a spokesperson for the British Venture Capital Association told City A.M.
“Whilst investment into the UK is a welcome vote of confidence, relying so heavily on foreign investment to scale up UK companies will hold the UK back.”
Tech figures and politicians have looked to pension funds as potential plug to a major growth capital gap in the UK, estimated to be around £15bn.
Jeremy Hunt is expected to use his Mansion House Speech in the City next week to table a number of measures to push pension schemes into the private markets, the Sunday Times reported.
Hunt also reportedly held talks with top pension firms like Aegon, Aviva and Scottish Widows last week to discuss measures to boost their investment in the economy.
Douglas Hansen-Luke, founder of venture firm Future Planet Capital, told City A.M. pension funds can still be “too reluctant to invest in private firms.”.
“They need the government to encourage them to get more capital into fast growing companies,” he added. “It’s not all about attitudes. Pensions and insurance companies have large teams for public markets, in comparison those for venture can number just a couple of people. We have to build their capacity, numbers and experience.”
Shadow Chancellor Rachel Reeves has previously said she was open to the idea of forcing pension funds to pump a set amount of cash into private firms. However, mandatory allocation to private firms has unsettled some in the sector.
“We don’t think mandating schemes to invest in certain types of assets is the right approach. It risks funnelling savers’ money into assets that either aren’t suitable for them or could create artificial investment bubbles,” Nigel People, director of policy and advocacy at the Pensions and Lifetime Savings Association, said.
“However, pension funds are open to increasing investment in UK growth provided it is in the interests of the savers whose money they manage.”
People added that providing fiscal incentives like co-investment schemes or attractive tax treatments would be a better route to boosting investment in the private markets.