Chancellor of the Exchequer Jeremy Hunt has told the pension fund industry it must press ahead with reforms and that the government is putting the finishing touches to further measures to be announced in next month's Autumn Statement.
While some reforms being debated by politicians and industry may face "complex hurdles," Hunt said "no change is not an option," while speaking at a conference in the City of London on Oct. 25.
"We have to recognize that we are not saving enough and we're not getting the best returns in terms of international benchmarks," Hunt said. "We need to raise our game."
The government has been trying to secure reforms to the U.K.'s pension funds to boost returns for people in old age and to try to direct more of those savings into Britain's fast-growing startups and infrastructure projects. That prompted the "Mansion House Compact" this summer where a group of pensions providers agreed to allocate 5% of funds to growth assets.
The plans triggered a backlash among some in the industry, with criticism ranging from concerns about the riskiness of investing in unlisted assets to the complexity of consolidating funds.
But the proposals are likely to be included in the Autumn Statement, Hunt said. Trustees would not be forced in one direction but given options such as merging, co-investing in bigger pools or to parcel off pensions savings pots to insurance specialists in "buy out" transactions, he said.
Trustees need to think more about long-term value than just low fees, Hunt said. Part of the problem has been "over-restrictive regulatory structures," which have directed trustees to be "overly cautious."
A closer partnership is needed between venture capital and pensions investors, Hunt said. There are also opportunities in infrastructure, although lessons need to be learned from HS2, whose Birmingham to Manchester high-speed leg was scrapped by prime minister Rishi Sunak last month due to spiraling costs.
"At one point in that project they were planning to have air-conditioned platforms," and there was little sense of costs, Hunt said. "We will get it right," he added, pointing to the rail and other transport projects planned as replacements for the project.
Next month's policy statement will also include details about the role of the government-owned British Business Bank in overseeing investment in growth businesses, according to Hunt.
The government will "test the appetite for a further government-supported investment vehicle," he said. Bloomberg earlier reported that the Treasury has been considering copying Canada's growth fund, using taxpayers' money as seed funding. However, the chancellor may not commit to any spending as he is under pressure from his Conservative Party to use any available funds for tax cuts ahead of the general election, expected next year.
Serkan Bektas, head of client solutions at Insight Investment, said he was confident what appeared to be "irreconcilable issues" over pensions reforms could be resolved. "We think there can be a win, win, win that would be to the benefit of pension plan members, corporate sponsors of pension funds and the U.K. economy."
