PM and Chancellor call on pension investors for ‘investment big bang’

Boris Johnson and Rishi Sunak have written an open letter calling on UK pension schemes to spur a UK “investment big bang”.

The Prime Minister and Chancellor said that they recognise the responsibility of the government to “remove obstacles and costs” to making long-term, illiquid investments in the UK, and that an investment big bang would unlock “hundreds of billions of pounds” sitting in UK institutional investors.

Over 80% of UK defined contribution (DC) assets are invested in listed securities, which represent around 20% of the UK’s assets. The letter said that investors should remain focused on picking low cost, diversified investments that fit with their goals and appetite for risk.

“Whether you are a trustee or manager of a DC or defined benefit (DB) pension fund, running an insurance company or advising investors on their investment strategy, we are challenging you this summer to begin to invest more in long-term UK assets, giving pension savers access to better returns and enabling them to see their funds support an innovative, healthier, greener future for their country,” the letter stated.

AJ Bell head of retirement policy, Tom Selby, said that given their long-term focus and scale, DB and automatic enrolment pension schemes might seem ideal candidates to support UK companies, but warned that the letter from Johnson and Sunak won’t mean pension investors will “flock to illiquid UK investments in their droves”.

“The reality is that pension scheme trustees have a duty to invest members’ hard-earned retirement pots sensibly, considering various factors including risk appetite, cost and, increasingly, impact on the environment,” Selby said.

He added: “Institutional investors also need to prioritise diversification when choosing how to put members’ money to work, both in terms of the type of company they invest in and the country in which it resides. 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.

“While the focus here is on institutional money, retail investors should also think very carefully before piling into illiquid UK assets.

“Such assets may offer growth opportunities but can come with extra risks. This was most famously demonstrated in the collapse of Woodford Investment Management, which backed illiquid start-up companies and ended up unable to sell them quick enough to get cash to investors.

“Of course illiquid investments can be perfectly appropriate, but should only be considered if they fit with your retirement goals and risk appetite.”

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