UK pensions: funds must resist Westminster’s whims of iron

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The UK needs investment to boost its long-term economic growth prospects. No billions lurk down the back of the sofa. Jeremy Hunt, therefore, has the country’s retirement savings in his sights.

The UK chancellor is next week expected to set out plans to encourage more retirement savings to be ploughed into start-ups and infrastructure. Pension funds are rightly wary. Any attempt by politicians to strong-arm private capital into pet projects smacks of financial repression.

Hunt is expected to pitch an argument that pension savers can benefit from the potentially higher returns available from investing in riskier asset classes. Ministers and academics claim the UK pension industry is more risk-averse than its Australian and Canadian counterparts.

About 60 per cent of pension assets are invested in bonds compared with just 15 per cent in early 2015, according to the Tony Blair Institute, a think-tank set up by the former UK prime minister

The pensions industry is pushing ideas of its own. The Association of British Insurers on Monday called for greater government co-investment to help de-risk illiquid assets. It hopes that by promoting voluntary schemes, it can neutralise the temptation for a compulsory requirement to back certain sectors of the economy.

The government already plans to invest up to £250mn alongside defined contribution schemes in promising science and technology companies. Rolling out similar initiatives to other sectors of the economy should be straightforward.

The greater difficulty is persuading pension funds to participate. Their overriding duty is to serve pensioners and savers. For the mature schemes that predominate, this means preserving capital, not chasing risky returns.

One option in co-investment is for the government to be wiped out first. That, however, would not go down well with taxpayers.

Few, even in the pensions industry, resist the idea of some reform. But the interests of retirement savers must remain at the heart of any overhaul.