The Government has held private talks over plans to channel tens of billions of pounds of pension money into infrastructure and start-up companies to boost the economic bounceback.
The Mail on Sunday can reveal that Treasury officials have met with senior figures in the pensions industry over the controversial scheme that would unlock some of the UK’s £2.2trillion retirement pots and parcel it out to fast-growing businesses, transport projects, real estate and carbon-friendly investments.
Industry sources said the Government and regulators had discussed how a portion of workplace pension schemes – those which staff are compelled to join – would go into a fund set for launch this year.
Rishi’s mission: The Government has held private talks over plans to channel tens of billions of pounds of pension money into infrastructure and start-up companies
The Long Term Asset Fund, which was announced by Chancellor Rishi Sunak in November, will pump money into parts of the economy and long-term projects that are usually inaccessible to pension savers – such as building projects and private companies.
Sources said workplace pension funds could invest a portion of employees’ savings in the new fund through a ‘default’ investment option – the standard choice which many select when enrolling in their company pension.
It would be possible to opt out but in reality most workers would contribute as a consequence of signing up to the default scheme.
This could mean that billions of pounds are automatically channelled into the fund.
The plan emerges as the Government searches for alternative sources of cash to help the economy rebound following the global pandemic.
It would provide vital backing for British start-ups so they do not look abroad for investment.
Pension fund bosses have begun to signal their support for the plan which they believe will give savers another source of income instead of relying on traditional stocks and bonds.
However, the plan is set to spark debate after the downfall of high-profile fund manager Neil Woodford, who came unstuck after making bets on private companies.
Critics warn that pension savers will be pushed into investments that are hard to sell or ‘illiquid’. The Investment Association, a powerful industry body, has warned that savers ‘understand that they are making a long-term commitment to invest’ and that ‘they may not be able to get their money back quickly.’
A string of property funds has been closed during the pandemic, trapping thousands of investors because fund managers could not sell investments in time to meet withdrawal requests.
One pension boss warned last night that it could be tough for retirees to quickly access their money. He said: ‘If we’re going to invest in HS2, for example, it’s not anticipated that we can sell a bit of HS2 to take out our money tomorrow if we retire.’
One big hurdle is a limit on the fees that workplace retirement schemes can charge. Last week, the Government revealed it will relax a limit on workplace pension charges from October, so that workplace default funds can more easily invest in illiquid assets like infrastructure and private equity, which are costlier to manage. Some experts have hit back saying this will increase the charges on pensions.
Sunak said last year that the fund would ‘encourage UK pension funds to direct more of their half a trillion pounds of capital towards our economic recovery’. But he did not detail how contributions would be made.
Workplace schemes are designed by companies such as Legal & General, Royal London and Phoenix Group. Trustees sign off on pension investments and whether they are suitable for members.
Nigel Wilson, chief executive of Legal & General, said opening access to private assets could ‘deliver better returns’ for pension savers while helping the economy.
He said the Long Term Asset Fund ‘may evolve into a useful instrument for doing this, but we also need a change in mindset and some powerful nudges – possibly even soft compulsion – to ensure pension trustees and their advisers engage with productive finance and inclusive capitalism’.
Michael Eakins, chief investment officer of Phoenix Group, the UK’s largest retirement company, said: ‘When we engage with our policyholders, they quite like the idea of their pension savings being deployed in a way which is good for local economies.’
A Department for Work and Pensions spokesman said: ‘We are passionate about making sure people can get the best outcomes from their pension investment and we are gathering views to deliver this.
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