The UK government is keen to encourage more investment in the UK from pensions funds, many of which are managed by insurance companies. It is wise to invest in UK based companies, espcially those in the insurtech sector where innovations can easily be applied or exported globally, once the viability of a product has gone through proof of concept.
There is a general fear however that many UK companies who ARE success stories simply get snapped up by overseas investors. Then there is the security aspect of having overseas private equity funds, or State backed venture capital, owning telecomms, water, oil refineries, arable land, hydro electric or other infrastructure. So everyone agrees more UK ownership is a good thing, but nobody in the Conservative Party wants to advocate nationalisation.
So the challenge has been thrown down to UK pension fund managers to put more cash assets into UK companies, plus there is a load of waffle about the green industrial revolution and fighting dementia in the PM’s letter. There is a new Infrastructure Bank, plus a Green Gilt.
For insurers, the interesting news is buried halfway down the letter;
“We are reviewing the prudential regulatory regime for the insurance sector (Solvency II), and with the support of the Productive Finance Working Group, the FCA will launch in the autumn a framework for a new vehicle for long-term investment, the Long-Term Asset Fund.”
You can read the `challenge’ letter from the PM and Chancellor’s office here.
Let’s not forget that these funds are people’s pensions. Regular citizens who would like a top-up payment each month above the derisory State pension which is begrudgingly dished out under duress by the government, especially to WASPI women. This isn’t quantative easing, or magic money found behind the sofa cushions to fight Covid. This is real cash, cautiously invested, by insurance companies on behalf of pension scheme members.
Not all infrastructure projects are equal when it comes to making a profit. Most private pension scheme contributors don’t want to own an apartment block in Warrington full of benefits claimants, or a new bridge across the sea to Northern Ireland that generates pitiful toll revenues compared to its build costs, or a percentage of the HS2 white elephant. The danger is that government will pressurise the pensions sector to invest in its own pet projects, exploiting the lack of coherent political opposition, given we now live in a one party State.
That would be a devastating betrayal of future pensioners’ incomes, hopes and dreams.
Charlotte Clark, ABI Director of Regulation says:
“We agree the insurance and pensions sector has a significant role to play in the UK’s economic recovery and we welcome this call from the Prime Minister and Chancellor. Analysis has shown that up to £95bn could be freed to boost the UK economy and help tackle climate change if reforms are made to Solvency II. We look forward to working further with the Government to loosen this overly-prescriptive regime so that our industry can do more to help.”
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
‘’The UK government has thrown down the gauntlet to institutional investors, challenging them to reassess their lack of love for UK assets. During a week when more overseas companies have circled British firms with acquisition deals coming thick and fast, it’s clear that the UK stock market is still perceived as under-appreciated compared to US and European peers. Overseas pension funds are far more likely to benefit from long term UK investments than their British counterparts and this is what the government is intent on changing.
Britain’s Prime Minister and Chancellor want to see a big bang of investment which would provide a slow burn of capital heat to propel Britain’s recovery from Covid and its long term growth, but many institutional investors, and in particular pension funds, would argue the kindling needs to be laid first before the spark can take hold.
That would include the removal of the cap on fees that defined contribution schemes can charge to ensure they are not over penalised for over performance, and that does now appear to be in hand, with the Department for Work and Pensions set on reforming this. The launch of the UK infrastructure bank should also help light the touch paper, to encourage joint investment in long term green schemes. But the biggest change is likely to come with the revving up of a new vehicle for investment management – the long term asset fund – opening up possibilities of investment which until now have been restricted for UK pension funds.”