/Budget: UK schemes to have more flexibility to invest in illiquid assets | News (via Qpute.com)
Budget: UK schemes to have more flexibility to invest in illiquid assets | News

Budget: UK schemes to have more flexibility to invest in illiquid assets | News (via Qpute.com)


In today’s Budget Chancellor Rishi Sunak announced the UK government would look to create more flexibility for pension schemes to invest in illiquid assets.

“We’re taking steps to give the pensions industry more flexibility to unlock billions of pounds from pension funds into innovative new ventures launching a new Future Fund Breakthrough, to help fill the scale-up funding gap and changing the rules to encourage more companies to list here,” he told Parliament.

The £375m UK-wide Future Fund will invest in highly innovative companies such as those working in life sciences, quantum computing, or clean tech, that are aiming to raise at least £20m of funding, according to the government’s website.

Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy Nigel Peaple said this relates to a forthcoming Department for Work & Pensions (DWP) consultation about the calculation of the 0.75% charge cap on pensions used for automatic enrolment and whether it should be amended to allow for performance fees to be smoothed over multiple years.

“This is a complex issue involving calculations of risk and return as well as fees. We will respond to the consultation when it is published in a few weeks’ time,” Peaple said.

Mark Powley, head of defined contributions investment and associate director at Isio, said that large pension funds are a “tempting source of investment for governments looking to boost funding in target growth areas such as infrastructure, green investment and innovation”.

Rishi Sunak at Parliament

“From the pension industry’s perspective, anything that helps improve the chances of delivering better outcomes for scheme members is welcomed. If changes to existing rules allow investment in a broader and more diverse range of asset classes than defined contributions schemes are currently able to access due to cost or illiquidity then it’s a positive development,” Powley noted.

At NEST, CIO Mark Fawcett believes that as the global economy recovers from the pandemic there is potential for certain trends to accelerate, particularly growth companies developing new green technology and digital innovation.

“With 9.8 million NEST members, representing nearly a third of the UK workforce, unlocking returns from sectors crucial to solving the climate catastrophe is a win-win for our savers and society,” Fawcett said.

He added: “We want to give our members a bigger pension in a better world, which is why we welcome government smoothing the way for institutional investors to deploy more patient capital where we see the right opportunities.”

UK updates central bank remit to reflect net-zero strategy

The remit of Bank of England’s monetary policy committee has been updated to reflect that the UK government’s economic strategy includes supporting the transition to net-zero emissions.

The change was announced in connection with today’s Budget announcement, with Chancellor Rishi Sunak saying the updated monetary policy remit would “reflect the importance of environmental sustainability and the transition to net-zero”.

According to Katharine Neiss, chief European economist at PGIM Fixed Income, this made Bank of England the first major central bank to have climate change incorporated in its mandate.

The Bank of England said it would in coming months provide more information about its proposed approach to adjusting its corporate bond buying programme to account for the climate impact of the bonds’ issuers.

The idea would be for the approach to have been adapted by the time of its next scheduled round of reinvestment operations in the fourth quarter of this year.

At the UK Sustainable Investment and Finance Association, CEO James Alexander said the group welcomed the announcement of the updating of the committee’s remit “as a starting point for the UK’s climate commitments being embedded across the UK’s regulatory system”.

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