The Pensions and Lifetime Savings Association (PLSA) has outlined 12 ways to make UK assets more appealing to pension funds, stating that pension funds are open to increasing investment in UK growth provided it is in the interests of the savers.

The PLSA explained that while it is essential that pension schemes' investments meet the needs of savers and scheme members in line with the fiduciary duty, this does not mean that they are not also able to be a source of capital for owning the right sort of UK investment assets, where they have the right risk-return characteristics.

Indeed, the report noted that the scale and distribution of assets across the pensions sector is expected to alter substantially over the next decade, estimating that the volume of assets in defined contribution (DC) schemes is expected to double to around £1trn, while the value of assets in the Local Government Pension Scheme (LGPS) is forecast to increase up to around £500bn.

The value of private sector DB pension funds, meanwhile, is expected to stay the same at £1.5trn, although the PLSA pointed out that as many as 500 schemes, managing assets of around £300bn, remain open.

Given this, the PLSA stressed that pension schemes that are open and growing provide a good source of funds for further investment in growth-oriented UK assets, outlining 12 specific opportunities that could encourage pension schemes to invest further in UK growth.

In particular, the PLSA emphasised the need for suitable UK investment opportunities, suggesting that the asset management industry should be encouraged to focus on sourcing UK opportunities and developing new investment funds and products that are appropriate to pension fund needs.

It also said that the British Business Bank should be given an extended scope to support companies that need scale up capital, and to create or partner with funds that can bundle up the assets in a form that would be suitable for pension funds.

The PLSA suggested that initiatives like the Long-term Investment for Technology and Science (LIFTS), are also appealing to pension funds, provided the financial support from Government is of a long-term nature.

In addition to this, it stressed the need for policy certainty, suggesting that a clear plan for the future of the UK economy, for example on the green transition, will help draw pension fund investment and allow the UK to compete with non-domestic assets.

Alongside these broader measures, the PLSA outlined some specific measures for DC schemes, including incentivising the market to ensure that those purchasing workplace pensions balance net performance and costs, focusing on ultimate member outcomes.

It also said that, where trustees make investment decisions, more should be done to ensure they have the skills necessary to the task and that they receive good advice from investment consultants.

The PLSA also stressed the importance of scale, suggesting that the quickest route to achieving volume and scale is by using “fund of fund” investment vehicles, for example, by including a mixture of lower risk growth assets, with some higher risk venture assets, to produce a more balanced investment, rather than further speeding up consolidation of DC.

Measures specific to the LGPS were also outlined. In particular, the PLSA argued that the Scheme Advisory Board’s Good Governance review should be implemented as soon as possible, as well as warning that more resource is required to ensure the effective operation of the LGPS, including within its supervisory bodies.

In relation to DB schemes, meanwhile, the PLSA stressed the need for the upcoming DB Funding Code to allow flexibility for open DB pension schemes to be able to carry long-term risks as part of their investment strategy, even as they approach maturity.

It also argued that reforms are needed to the solvency regime for insurers such that it would incentivise them to directly take over more illiquid assets held by pension funds as they approach buyout.

Commenting on the recommendations, PLSA director of policy and advocacy, Nigel Peaple, stated: “Pension funds play an essential role in supporting the UK economy. The UK has one of the most sophisticated and mature pensions systems in the world – it is a great British success story, that provides security to tens of millions of savers.

“How pension funds can play a bigger role in providing capital to support growth in the UK economy is an important question, and in our discussions with schemes there is a clear appetite to invest in the UK - where it is in the interests of savers.

“We have identified a dozen interventions to address these issues. These range from ensuring there is a suitable pipeline of investment opportunities, packaged up by the asset management industry and government so they are suitable for pension fund needs, to targeted regulatory and fiscal measures, including some related to the operation of the auto enrolment market.

"They build on current government initiatives and address the needs of the pensions landscape as it is now.

“Pension funds are open to increasing investment in UK growth provided it is in the interests of the savers whose money we manage.”

Share Story: