Chancellor Philip Hammond has paved the way to use billions of pounds of defined contribution pension money to fund fast-growing British technology companies.
According to the Budget’s background documents published today, 29 October, the move comes following The Pensions Regulator’s updated guidance for DC schemes considering patient capital investment, with DC assets under management expected to total £1trn by 2025.
Several of the largest pension schemes, including Nest, Aviva, HSBC, L&G, The People’s Pension and Tesco Pension Fund will work with the British Business Bank to explore options for pooled investments into patient capital.
“The government is backing business and entrepreneurship by increasing access to finance for private sector investment and helping people who want to start and grow businesses. This includes action to unlock pension fund investment in growing firms and policies to raise business productivity,” the Budget background documents said.
“With total assets under management expected to exceed £1trn by 2025, defined contribution pension schemes have a vital role to play in long-term financing for UK growth and innovation.”
The Financial Conduct Authority (FCA) will consult on how the existing fund regime will enable investment patient capital at the end of this year, as well as updating the permitted links framework to allow “unit-linked pension funds to invest in an appropriate range of patient capital assets”.
The Treasury’s Asset Management Task Force is currently exploring the feasibility of a new long-term asset fund.
Furthermore, the Department for Work and Pensions will consult on the function of the pensions charge cap in 2019, “to ensure that it does not unduly restrict the use of performance fees within default pension schemes, while maintaining member protections”.
Hymans Robertson head of DC consulting, Mark Jeffray, said: “We welcome the Chancellor’s commitment to consult on the relevance of a charge cap as he encourages greater investment in patient capital. While the charge cap has largely been a positive force, particularly in driving better value for members, it can prohibit investment in illiquid assets which are expensive to transact and manage.”
The initiative, which will sit alongside the government’s £2.5bn patient capital programme announced in June, will help bolster returns for pension savers while providing additional funding for technology companies with high-growth potential.
Aegon pensions director, Steve Cameron, said: “While this would be good news for new and innovative start-up firms seeking investment, we must not overlook the fact that pensions are primarily for the members to fund retirement. We mustn’t push pension savers into potentially higher risk investments that may not be suited to them.”