COVID-19 has placed a significant strain on public finances in the UK, leading Chancellor Rishi Sunak to investigate ways in which to boost the nation’s economic recovery.
In early August, Rishi Sunak and Boris Johnson urged institutional investors to channel a higher proportion of their capital into “the companies and infrastructure that will drive growth and prosperity across our country”. Not only would this benefit economic recovery, they said, but would also lead to “UK pension savers benefitting from the fruits of UK ingenuity and enterprise, being given the opportunity to back British success stories, and secure higher returns and better retirements”.
While it sounds, on the face of it, like a logical approach, the investment industry has highlighted hurdles and issues that must be overcome before pension scheme trustees will consider investing more in illiquid UK assets.
Cost and complexity
In theory, this appears to be a potential solution to the UK’s financial woes. However, pension fund trustees are duty-bound to ensure that their clients are getting the best possible return, at the appropriate level of risk.
There are fears that a focus on illiquid UK assets could increase risk, as in the case of Woodfood Investment Management, which collapsed this year. There is also a very real need for trustees to do what is right for their clients. Tom Selby, head of retirement policy at AJ Bell, says, “Ultimately, the main job of pension schemes is to invest in a way that maximises returns for their members, not in the way the prime minister tells them to.”
It is clear that the UK government is keen to drive investment in the UK, helping the nation to “build back better”. However, without the right risk profiles and yields, it could prove challenging to get pension fund trustees to shift their focus.
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