A Senior Researcher from the SMF Britains think tank says that the best way to support the infrastructure the country urgently needs in the long-run is to make better use of the billions of pounds held in pension funds that could be profitably invested in helping Britain on its way to a green recovery.
Should SA also create pension superfunds to support the infrastructure investment initiative currently underway?
Pension superfunds 'key' to financing infrastructure amid economic recovery
A report by the think tank, Investing in Britain’s Future, highlighted pension reform as “the key” to financing and funding new infrastructure, and urged ministers to encourage UK pension funds to “merge into fewer, larger funds” that are able to invest large sums into long-term projects.
SMF emphasised that despite a number of government consultations on the creation of pension superfunds, ministers are "yet to announce decisions", although a regulatory framework is expected shortly.
However, the think tank argued that "urgent action" on pension reform is needed now, in order to support an economic recovery through infrastructure projects following the current pandemic.
It also called for further reforms around investment rules to allow new superfunds to pay the management fees often involved in running these large projects.
The report, which was based on roundtable discussion with parliamentarians, former officials, investors and academics, also concluded that greater certainty and clarity as the profits that can be made from funding infrastructure projects is needed.
It emphasised that such profits should be “energetically explained” to voters as a condition of private financing of public infrastructure, emphasising that political pressure to eliminate profits from private finance can often deter investment in infrastructure.
Richard Hyde, Senior Researcher at the SMF added: “The best way to support the infrastructure the country urgently needs in the long-run is to make better use of the billions of pounds held in pension funds that could be profitably invested in helping Britain on its way to a green recovery"Ministers should move quickly to encourage the creation of pension superfunds like those in Australia and Canada.”
“In the short-term, ministers looking to get infrastructure projects up and running and providing jobs should be prepared to spend directly to support pathfinders that can prove to investors that it is safe to invest in similar projects.
"That means taxpayers bearing more of the risk, but the long-term rewards justify that risk.”
On a recent AMNT webinar, Department for Work and Pensions (DWP) director of private pensions and arm's length bodies, Pete Searle, emphasised that both the government and the pensions minister were "very keen to promote greater investment" in illiquids and infrastructure by pension schemes.
He added: “Clearly its for schemes to decide how to invest, but we think there's potentially real value in those investments.
"We are looking to talk with people in the system people to find out what the blockages might be, and what the government might need to do do to remove some of those blockages. We think It would be good for schemes, good for members, but also good for the long term health of the economy."
Earlier this year, industry experts warned that the government was walking a “fine line” in terms of telling pension funds where to invest in infrastructure, also stressing that trustees must focus on earning a return, rather than simply looking at what investments are “socially worthwhile”.
Meanwhile, Lane Clark and Peacock has highlighted that the end of the regulatory stalemate surrounding consolidators and superfunds could also see an "explosion" of scheme strategy diversity .
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