Next phase of Mansion House reforms announced

The chancellor, Jeremy Hunt, has announced the next phase of the Mansion House reforms, with the government announcing a £320 million plan to get DC schemes investing in private markets.

The government will commit £250 million to two successful bidders under the Long-Term Investment for Technology and Science (LIFS) initiative, providing over a billion pounds of investment from pension funds and other sources into UK science and technology companies.

In addition, a growth fund will be established within the British Business Bank, giving pension schemes access to opportunities in (what the press release terms) “the UK’s most promising businesses”.

The bank will work closely with the pensions industry to design an investment vehicle and announce more details in due course, it said.

Louis Taylor, CEO of the British Business Bank said: “This package of measures has the potential to unlock billions of pounds of additional investment for the UK’s fastest growing and most innovative companies, thereby boosting the economy and driving returns for pension savers.”

The government will also launch a new venture capital fellowship scheme, similar to the US Kauffman Fellowship, which nurtures promising investors.

The industry responds

While broadly supportive of the announcement, the pensions industry cautioned that steps into private market would have to be made carefully, and only when the investment case for DC savers is strong.

The Institute and Faculty of Actuaries (IFoA) called for long-term thinking in pensions policy. Debbie Webb, IFoA Pensions Board Chair, said: “This summer, the Government launched a raft of consultations aimed at supporting better outcomes for savers and increasing growth in the UK economy.

“The IFoA supports both aims but has called for more detail on the balance between boosting growth, promoting industry consolidation and protecting the interests of current pension scheme members.”

Alison Leslie, head of DC investment at consultancy Hymans Robertson, echoed Webb’s note of caution. “Whilst we welcome initiatives which expand the investment universe and support savers, it will take some time for the initiative to be commercially viable for many pension arrangements. 

“Over time however we think this is a welcome addition to the universe of investments available for DC savers focusing specifically on the UK.  If the investment case stacks up, like any investment, it would in time be considered as part of the investment universe but the rationale and returns have to bear fruit.”

Tim Orton, Aegon’s chief investment officer said:  “Investing in private assets will be a completely new venture for many pension schemes. Alongside Long Term Asset Funds, we welcome the development of the British Business Bank’s offering as it’s important to offer a range of routes into such investments.

But crucially, making changes to workplace pension investments is something which shouldn’t be rushed, which is why the Compact commitment to invest 5% of default funds in private assets is looking ahead to 2030.

“Pension schemes must be given time to plan a considered and effective move into private assets, with improving member outcomes front and centre.”