The government is set to launch a green paper on how defined benefit pension schemes can pool their investments to fund infrastructure projects, according to The Sunday Telegraph.
It is reported that government ministers are working on schemes to get pension funds to invest in energy projects, railway schemes including HS2 and new broadband roll-outs as well as other building projects.
A government source told the paper: “If you’ve got a long-term infrastructure need why wouldn’t we be looking to put sensible money into that?
“Pension funds need to invest their money, they don’t want it sitting in cash or government bonds. If you can put it into something that can get them a decent return that is far better.”
The plans been drawn up ahead of Chancellor Philip Hammond’s Autumn Statement are hoped to drive infrastructure projects whilst increasing returns for struggling DB schemes.
One idea being considered is to give regional mayors powers to create ‘city bonds’, raising up to £1bn that would be underwritten by the Treasury. The government is looking at whether cities such as Manchester, Birmingham and Coventry can be allowed to raise their own bonds, with the proceeds spent on local infrastructure.
Another idea would see the government actively encourage different pension funds to group together, amid fears that they are too small alone to interest project leaders. Other areas of interest include getting the Treasury to take on the early risk of investing in building projects and extending a scheme that seeks funding for socially beneficial projects.
The paper reported that John Godfrey, No 10’s new director of policy who worked at the financial services company Legal and General, is understood to be steering the project, but there is activity across Whitehall.
It is expected that Work and Pensions Secretary Damian Green will publish a green paper on DB pensions by December. He is concerned that rules which cap pension funds from investing more than 5 per cent of their total pot on a single project are inadvertently discouraging investment.
There is a hope that the government can do more to group pension funds looking to invest together, making their offer more alluring to firms running bigger projects.
“There is very little ability for pensioners to have their money invested in their local economies. It is about creating new avenues of asset-based growth,” a source told the paper.
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