Updated: Chancellor announces next steps on Mansion House reforms

Chancellor, Jeremy Hunt, has announced a £320m plan designed to drive innovation and unlock the first tranche of investment from his Mansion House Reforms.

Hunt previously unveiled proposals for a raft of reforms at his Mansion House speech earlier this year, suggesting that the changes could increase a typical earner’s defined contribution (DC) pot by 12 per cent and “unlock” up to £75bn of additional investment.

The Chancellor has now announced the next steps in delivering these reforms, with new support to be provided for investment vehicles tailored to the needs of pension schemes, allowing investment into the UK’s innovative companies.

In particular, the government will commit £250m to two successful bidders under the Long-term Investment for Technology and Science (LIFTS) initiative, subject to contract.

Alongside this, the government has announced that a new Growth Fund will be established within the British Business Bank (BBB) to complement private investment vehicles.

The Growth Fund is expected draw on the BBB’s strong track record and a permanent capital base of over £7bn to give pension schemes access to opportunities in the UK’s most promising businesses.

News of the growth fund has already been welcomed by eight pension schemes and fund managers as a potentially valuable addition to the market: Aviva, L&G, M&G, Smart Pension, Aegon, Phoenix, Aon and the Universities Superannuation Scheme (USS).

Building on the recent Venture Capital Investment Compact, which also announced a number of new signatories today (21 November), the package also includes measures to further strengthen the UK’s renowned venture capital industry.

As part of this, a new Venture Capital Fellowship scheme will be launched to support the next generation of investors in venture capital funds.

Commenting on the reforms, Hunt stated: “Innovation is the key to our future success as a nation and its vital that we do all we can to help companies start, scale and grow in the UK.

“Tomorrow’s Autumn Statement will be a huge step towards delivering our Mansion House Reforms and unleashing the full potential of our pensions industry.”

Hunt confirmed that the government will also be looking to inject £20m to foster more ‘spin-out’ companies, firms created using research done in universities, as well as providing at least £50m additional funding for the British Business Bank’s ‘Future Fund: Breakthrough’ programme.

The plans were announced at the same time as the Chancellor has been convening with representatives from several universities and investors at University College London (UCL) East where they will endorse a new set of ‘best-practice policies’ that were recommended as part of an independent review of spin-outs.

Announcing the plans, the Treasury explained that while spin-out companies raised £5.3bn in investment in 2021-22 alone, many spin-outs deals in the past were created from scratch, which is inefficient.

In light of this, the review outlined a number of policies that universities and investors should adopt to make the UK the best place in the world to start a spin-out company.

This includes recommendations to speed up the process and build on TenU’s University Spin-out Investment Terms (USIT) Guide by recommending 10-25 per cent university equity for life sciences spinouts, and 10 per cent or less for less IP-intensive sectors.

The Chancellor has accepted all the recommendations and will set out his full response as part of the Autumn Statement tomorrow.

The announcement was welcomed by the BBB, with CEO, Louis Taylor, suggesting that the package of measures has the potential to “unlock billions of pounds of additional investment for the UK’s fastest growing and most innovative companies, thereby boosting the economy and driving returns for pension savers”.

“With at least £50m more funding for the Future Fund: Breakthrough programme the British Business Bank can continue to support innovative high-growth, R&D-intensive British companies operating in breakthrough technology sectors,” she continued.

“We welcome these ambitious measures and the confidence the government has demonstrated in the British Business Bank to deliver them.”

However, industry experts have warned that changes in workplace pension investments should not be rushed, as Hymans Robertson head of DC investment, Alison Leslie, clarified that while the firm welcomes initiatives that expand the investment universe and support savers, it will take some time for the initiative to be commercially viable for many pension arrangements.

“Over time however we think this is a welcome addition to the universe of investments available for DC savers focusing specifically on the UK,” she continued.

“If the investment case stacks up, like any investment, it would in time be considered as part of the investment universe but the rationale and returns have to bear fruit.”

This was echoed by Aegon chief investment officer, Tim Orton, who said: "Investing in private assets will be a completely new venture for many pension schemes.

"Alongside Long-Term Asset Funds, we welcome the development of the BBB’s offering as it’s important to offer a range of routes into such investments.

"But crucially, making changes to workplace pension investments is something which shouldn’t be rushed, which is why the compact commitment to invest 5 per cent of default funds in private assets is looking ahead to 2030.

"Pension schemes must be given time to plan a considered and effective move into private assets, with improving member outcomes front and centre.”

Adding to this, LCP partner, Stephen Budge, warned that the Chancellor's plans do not go far enough to persuade investors to ‘buy British’, rather than investing more globally as trustees are obligated to do.

He continued: “LIFTS was supposed to create the opportunity to dial up the investment case for UK investment as well as unlocking the opportunity.

“However, without any tax benefits or fee incentives, we simply do not see how pension schemes will meet the call to invest in UK opportunities to the extent the Chancellor and wider government are looking for.

"Having placed around £1bn of private market investment through client investment strategies over the last 12 months, we know there is significant interest and willingness amongst trustees to commit the time and energy to invest in these significantly more complex investment opportunities – all seeking to improve the outlook for DC pension savers.

"We are concerned that the huge amount of work to get these initiatives off of the ground will be met with indifference by trustees and the broader industry. It is worth remembering the previous opportunities such as the Pension Infrastructure Platform (PIP) that never materialised the support that was predicted.

"Without a greater level of government support to drive industry commitment, we are concerned that these bold and positive developments will see a similar fate to PIP."

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