The Society of Pension Professionals (SPP) has acknowledged the need for increased pension investment in productive finance assets, although it raised concerns that this could have potentially negative consequences for savers if not implemented carefully.

Its paper on increasing pension scheme investment in ‘productive finance’, Solving the UK Investment Puzzle, sought to identify the obstacles to success, which included the absence of a consistent definition of either ‘UK investment’ or ‘productive finance’, as well as regulatory barriers.

To overcome these hurdles, the association outlined a range of possible solutions.

In the defined benefit (DB) pension space, the SPP called for legislative change for surplus sharing, alongside increased protection offered by the Pension Protection Fund (PPF), freeing the lifeboat’s reserves up for investment in productive finance assets, and a government guarantee for DB schemes that allocate to such assets.

For the Local Government Pension Scheme (LGPS), the SPP said the idea of the government compelling the LGPS to invest a specific proportion of assets in UK productive finance should be examined, and acknowledged the possibility of transitioning unfunded public sector occupational schemes to a funded model.

On the defined contribution (DC) pension side, the paper explored the idea of a new freestanding duty on trustees to include certain minimum asset holdings investments.

Furthermore, looking to address the issue of costs, including a review of the charge cap, was discussed, as well as the potential benefits of consolidation and long-term asset funds (LTAF) with regard to investment considerations.

Other potential solutions highlighted in the paper include tax incentives, a productive finance gilt and the utilisation of collective DC pension schemes.

Commenting on the publication, SPP president, Sophia Singleton, said: “This latest SPP paper, Solving the UK Investment Puzzle, identifies numerous barriers to success but more importantly also details a wide range of potential solutions to these problems.

“As the government continues its Pensions Investment Review and their call for evidence concludes, this paper should prove to be a useful starting point for government and industry to achieve an outcome that best serves the interests of all involved parties – policymakers, the UK economy and, perhaps most importantly, savers.”

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