"The key aim of pension schemes must remain providing an income in retirement to their members, not as a compulsory flow of investments to finance parts of our economy."
- Steve Cameron, Aegon
The move aims to provide funding for fast-growing start-up companies as well as potentially benefiting savers by increasing returns.
The autumn Budget in 2017 announced an action plan to unlock £20 billion of finance for innovative high-growth firms, and established a taskforce to address the barriers to pensions investment in patient capital. Today’s Budget confirmed that several of the largest defined contribution pension providers in the UK have committed to work with the British Business Bank to explore options for pooled investment in patient capital, including Aviva, HSBC, L&G, NEST, The People’s Pension, and Tesco Pension Fund.
The FCA will publish a discussion paper by the end of 2018 to explore how effectively the UK’s existing fund regime enables investment in patient capital. This will accompany the ongoing work of HM Treasury’s Asset Management Taskforce to explore the feasibility of a new long-term asset fund.
Steven Cameron, pensions director at Aegon, was cautious about the move. He said that, while the scheme could help boost businesses and offer high returns for those who are prepared to accept the risks involved, there remained a number of logistical challenges.
Cameron commented:
“The Government seems keen to use pension schemes as a source of ‘patient capital’ investment to help innovative firms secure long term investment. Patient capital investment offers the potential for high returns for those prepared to take a risk with newer, innovating companies and who are prepared to invest for the longer term. Pension schemes often have longer investment horizons with some members remaining invested for decades, which means an element of riskier patient capital investment may be worth considering.
“However, people do change jobs and transfer their pensions, meaning schemes need to ensure they also have sufficient liquidity. Patient capital investments may not be priced daily which creates a challenge for schemes in which members can buy and sell units in investment funds daily.
“While an element of capital investment may be worth considering in some schemes, this must be part of a diversified approach and should be for trustees and scheme providers to consider, with no mandatory requirement. The key aim of pension schemes must remain providing an income in retirement to their members, not as a compulsory flow of investments to finance parts of our economy.”
