It has been much publicised across the national media today that, during his Mansion House speech tonight, Chancellor Jeremy Hunt will be announcing plans to support the development of ‘businesses of the future’ in the UK.
One of the things he is set to announce is the so-called ‘Compact’ agreement, with some of the UK’s major investment groups and for pension funds to invest around 5% of funds into early-stage businesses.
The Compact is a voluntary, industry-led expression of intent to take meaningful action to secure better outcomes for UK pension savers through increased investment in unlisted equities.
On Twitter this afternoon, ahead of his Mansion House Speech tonight, Jeremy Hunt said:
“We have a longstanding problem in the UK – our innovative companies are finding it too difficult to get the capital they need to grow.
“Too often, if the bank says no, businesses aren’t created, brilliant ideas aren’t implemented, jobs, profits and tax revenue don’t come in to being – or if they do, it’s not with British money.
“Tonight, at my Mansion House speech, I’ll set out the first steps in that plan…so that these businesses of the future are created here and flourish here.”
The industry has been commenting on these proposals as follows:
As a signatory to the Mansion House Compact, Edward Braham, Chair of M&G plc, says: “Patient capital put to work in companies or projects over multiple decades is essential to support economic growth and importantly, capture value for people’s pensions as they save for their retirement.
“M&G’s heritage is in investing in private markets, whether it is through infrastructure, real estate or innovative companies with purpose. We are democratising access to private markets through the Prudential With Profits Fund, and are supportive of Defined Contribution pension reforms that encourage more investment of this kind that has potential to result in positive outcomes for savers.”
Announcing that Aegon will be a founding signatory of the Mansion House Compact agreement, Tim Orton, Chief Investment Officer at Aegon UK, said: “Aegon UK is proud to be a founder signatory of the Mansion House Compact which will help deliver better long-term outcomes for our pension scheme customers.
“Trustees and managers of DC schemes are under a duty to act in the best interests of their scheme members. As part of this, they should consider a wide range of investments, including private equity, for the benefit of the members. This is particularly true of scheme default funds where most members remain invested, leaving investment decisions to the trustees or manager.
“We are committed to ensuring our customers can access and share in the growth and success of innovative companies we invest in as part of diversified portfolios. We will use our scale and expertise to develop investment solutions seeking to improve the retirement outcomes of the millions of members of the defined contribution pension schemes we support.
“The Compact will also create opportunities that help deliver £500 million assets under management target set for investments in climate solutions within its default funds by 2026 and as we progress towards net zero.”
Nausicaa Delfas, The Pensions Regulator (TPR)’s Chief Executive, said: “These reforms support our ambition for pension savers to be in large, well-run schemes that deliver good outcomes at every stage of their retirement journey.
“They will drive a long-term focus on value, encouraging schemes to invest in the full range of asset classes to deliver higher returns for savers.
“The value for money framework will shine a light on schemes that consistently underperform, and new powers will allow us to enforce consolidation where necessary.
“Similarly, the expansion of collective defined contribution schemes (CDCs) and introduction of a permanent regime for pensions superfunds all represent a welcome boost for innovation in savers’ interests.”
, Chris Cummings, chief executive of the Investment Association, said:
“The IA welcomes the increasing focus on the importance of getting investment right in the UK pension system, whether that be through Defined Benefit (DB) schemes, Defined Contribution (DC) or variations of the two. For DC, an important first step is to reframe the value discussion in order to focus on long-term returns for savers. The new Long-Term Asset Fund (LTAF) is designed in part to facilitate this, by providing both DC pension savers and retail investors with wider access to private markets, which is a central element of the Mansion House Reforms. The further measures now announced to drive cultural and practical change will provide additional, positive impetus. We look forward to working with Government, regulators and investors to help deliver the best possible outcomes in the pensions system, while supporting growth in the wider UK economy.”
Chris Smith, Investment Manager UK Equities, Jupiter Asset Management has also commented, following the Chancellor of the Exchequer Jeremy Hunt’s Mansion House speech:
“As a UK fund manager with significant investments in UK PLC, it goes without saying that we are extremely keen to see the UK’s entrepreneurs, economy and its corporations thrive globally. That said, it is unrealistic to expect the reforms announced to make a meaningful difference to growth or investment in the UK in the short term and there is still a lot of questions to answer. How are ‘UK growth assets’ defined? What does a ‘voluntary expression of intent’ mean? What will be the liquidity, valuation, cost differences and implications to pension fund members being asked to invest in unlisted assets? Is there enough in the way of high quality, unlisted investment opportunities in the UK for an additional £75 billion of investment? What evidence suggests that unlisted assets will deliver higher, risk adjusted after fee returns and therefore justifies a higher allocation in pension portfolios?
“It is crucial that the pension compact remains voluntary both in letter and in spirit. Fundamentally, pension fund trustees have a fiduciary duty to carefully and thoughtfully maximise the risk adjusted returns for their members, and trustees should be making these important investment decisions independently without interference from politics.“
Liz Field, Chief Executive of PIMFA, commented: “We welcome the Government’s efforts to make the UK more competitive and attractive to investors, and it is right that the Chancellor looks to build on the successful role of the City to ensure it remains one of the leading global financial centres while removing unnecessary regulations that have no relevance for UK financial markets.
“As the Chancellor rightly acknowledges, the UK has one of the largest retail investment markets in the world, and it is right that these Mansion House Reforms are focused on ensuring that British people will gain most from greater investment in growing UK businesses in retirement. PIMFA looks forward to working with the Government on how best this can be achieved.”
Tom Selby, head of retirement policy at AJ Bell, has shared his comments on the proposals laid out in Jeremy Hunt’s Mansion House speech:
“The chancellor is clearly desperate to boost long-term growth in the UK but has no appetite to do so through increased government borrowing. Given that context, it is understandable Jeremy Hunt has his eyes firmly set on directing a chunk of the UK’s £2.5 trillion pensions war chest into the UK economy.
“As these proposals are developed, it is vital the interests of savers are paramount in the thinking of the Treasury, regulators and the wider financial services industry. Defined contribution (DC) and defined benefit (DB) pensions are very different beasts and need to be treated as such, so it is positive the government hasn’t gone down the road of forcing pension schemes to allocate their funds in a certain way. It is also sensible to keep these reforms away from the retail investment world, where illiquid investments are more likely to be problematic.
“The ‘Mansion House Compact’ aim of getting at least 5% of workplace pension default funds invested in unlisted equities by 2030 might be seen as a potential boon for the UK economy, but any such investment needs to be done in the best interests of members. The Neil Woodford scandal exposed some of the challenges big investments in illiquid assets can have and investors will not thank the government if this policy hits the value of their retirements pots.
“It is, of course, possible that an investment approach that embraces a bit more risk over the long-term will ultimately boost member returns – but there are absolutely no guarantees. As such, the chancellor’s claim that this new approach will boost the average pension pot by 12%, or £1,000 a year, when they reach retirement should be treated with a huge handful of salt.”
Anna Anthony, UK Financial Services Managing Partner at EY, comments: “The UK is a leading global financial services market, renowned for innovation and providing an environment that enables growth. The Chancellor has announced areas of focus which represent a positive step forward, should boost UK attractiveness, and will benefit the economy, but as ever, success can only be measured on actions.
“We know that the UK offers deep capital markets and a highly skilled workforce, which are fundamental advantages in a globally competitive market, but we can’t be complacent – the industry must be actively supported to build upon this strong foundation and find new avenues for growth and innovation. If implemented as announced, the measures stand to simplify the listing process and unlock further innovation, which will help attract businesses from across the world to the UK to access the capital and skills they need to grow, while also providing better outcomes for the UK’s pension savers.”
David Brooks, Head of Policy at leading independent consultancy Broadstone, commented: “Amid confirmation of a string of well-trailed announcements, the Chancellor also conjured a rabbit out of the hat with the unexpected creation of a permanent regime for superfunds.
“Government backing for these long-awaited vehicles will certainly be a fillip for smaller defined benefit pension schemes struggling to attract insurers in a congested market. While superfunds have long been in the offing, weighty question marks remain over how long these reforms will take to implement and create a competitive environment.
“Many schemes will have recently benefitted from improvements in funding levels through the increase in gilt yields over the past 18 months and a viable alternative to the insurance market will certainly be an attractive option.
“Combined with the reforms encouraging schemes to invest across different asset classes, the Chancellor’s speech is explicitly aimed towards boosting investment across the UK economy. While higher returns will always be welcomed by pension savers, the government and pensions’ sector must work together to ensure member security remains at the very heart of these reforms to avoid undermining hard-earned trust in the industry.”
Responding to the Chancellor’s Mansion House speech, Louis Taylor, CEO, British Business Bank said: “With institutional investors currently only investing a small amount in alternative assets such as venture capital, pension savers may be missing out on opportunities for better returns.
“The British Business Bank fully supports the Chancellor’s request to explore establishing a vehicle that could receive third party capital such as pension fund investment, making use of the Bank’s track record and market access to a range of promising high growth companies.
“This would need to be tested with the market to ensure sufficient appetite, so the Chancellor has asked the British Business Bank to test proposals with industry over the coming months ahead of Autumn Statement.
