Former Pensions Minister, Ros Altmann, has called on the government to require pension schemes in the UK to support green growth, infrastructure, and climate and nature protection.

Altmann stated that nearly all pension schemes have at least a quarter of their assets from UK taxpayers, which could justify requiring allocations to domestic long-term growth projects.

In recent years, pension schemes in the UK have reduced their exposure to equities, but Altmann argued that diversification to higher return assets was overdue.

Alongside the reduction in equity investment, pension schemes have been increasing their asset allocation to bonds.

“Actuaries and regulators used to assume that equity investment was the most appropriate asset class for long-term pension funds,” Altmann stated.

“Capital market theory demonstrated that equities are expected to outperform bonds in the long run, so having a majority of long-term pension assets invested in equities should deliver best returns over time.

“Just relying on bonds would be giving up these higher expected long-term returns and the UK was a leader in this thinking.”

Relying on bonds is inappropriate for a long-term pension scheme, according to Altmann, especially for open schemes.

Pointing to the crisis in the bond market last year, Altmann described the caution shown by schemes in their recent preference for bond investment as “reckless” and that this caution locked out higher expected return assets.

She noted that, apart from the lowest earnings in a net pay scheme, every pension scheme had at least 25 per cent of its assets from HMRC, and with 25 per cent being paid out tax-free in retirement, there was justification for the government to require perhaps 10 per cent of each scheme’s asset allocations to support long-term UK growth.

“The Chancellor should urgently consider how to ensure all UK pension funds invest in a range of long-term assets that can boost green growth, infrastructure, social housing and climate or nature preservation, delivering better outcomes for pensions and the economy,” Altmann concluded.

Alongside the comments from Atlmann, the Chancellor has also faced calls to 'unlock' UK pension assets to drive economic growth from the Capital Markets Industry Taskforce (CMIT).

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