Pension funds should invest to ‘meet needs of economy’ post Brexit

Pension schemes should invest to meet the needs of the economy rather than only to meet regulatory requirements and match liabilities, according to a new report.

The report by Tomorrow’s Company titled, The need and opportunity for business to lead post Brexit looked at how businesses can show leadership and regain the public’s trust in a period of political and economic uncertainty following Brexit.

As part of this objective, the report highlighted how investors, including pension schemes can help to support businesses.

“The UK would benefit if asset owners, such as pension funds, invested their capital to meet the needs of the economy, rather than only to meet regulatory requirements and match liabilities. This would likely lead to an increase in funding for small and medium sized companies, rather than investing in government bonds,” the report said.

It said that too often dividends from large companies are reinvested in government bonds, rather than higher growth small companies.

“One way this could be achieved would be by more collaborative action between asset owners and companies. Pension funds and insurance companies could pool assets into new investment vehicles to invest in specific industries, themes or regions.”

In addition, Tomorrow’s Company believes investors should be more forceful in pushing for executive pay packages that align pay with performance, and help bridge the gap with society.

It also said investors sometimes encourage a short-term focus that prioritises cash returns to shareholders over investment and security for employees. Instead, investors could encourage companies to undertake long-term investment.

Commenting on the report, Barnett Waddingham partner and head of investment consulting Marcus Whitehead said: “The challenge here is that trustees of defined benefit schemes have an absolute and fundamental obligation to invest in the best interest of their members.

"There’s been a lot of investigations on this with regards to social responsible investment and environmentally friendly investment and there was a law commission review which highlighted that trustees can take SR investment into mind but there first and foremost responsibility is to their members.”

He said it could be done if the members wanted the trustees to invest in their interests but also in a way that backs Britain.

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