UK pension funds reluctant to back government’s growth agenda

The UK government is facing resistance from pension funds over its plan to mobilise up to £50 billion of contributions to invest in projects and businesses that support economic growth, according to a report in the Financial Times.

The government has brokered a deal with nine of the UK’s largest workplace pension schemes, which have agreed to allocate at least 5% of their default fund assets to start-ups, infrastructure and green assets by 2030.

However, other pension funds have expressed concerns about the lack of suitable investment opportunities, the high-risk nature of the sectors the government is targeting, and the attractiveness of the UK as a destination for their capital.

Nest, the state-backed workplace pension fund with £33 billion under management, said it was not keen to invest in early-stage companies, which have higher potential returns but also higher risk.

“Our job is not to support levelling up. It is to build retirement funds,” said Elizabeth Fernando, Nest’s chief investment officer, while speaking at a conference organised by the Pensions and Lifetime Savings Association (PLSA) in Manchester.

The British Telecom Pension Scheme, one of the UK’s largest private sector defined benefit schemes with £47 billion of assets under management, suggested the government could do more to entice pension funds.

“We are forced to be global,” said Morten Nilsson, chief executive of Brightwell, the firm that manages the scheme’s investments.

“The government has a real opportunity to help facilitate people like us who have slightly less risk appetite.”

The PLSA has called on the government to ensure there is a stream of high-quality investment assets that meet pension fund needs, proposing tax-free dividends and additional tax breaks for companies in the UK.