“The Government seems keen to encourage pension schemes and potentially members to make long term ‘patient capital’ investments to help innovative firms secure long term investment. For occupational pensions, trustees must be left to decide if they are appropriate for their scheme and its beneficiaries, and certainly for defined benefit, this depends on likely future outflows to pay benefits.
“The Pensions Regulator is to clarify its guidance on how trustees can invest in assets with long-term investment horizons as part of a diversified portfolio. We trust this guidance will reflect the illiquid nature of these investments. Larger schemes have more scope to diversify and patient capital investment may have relatively more appeal to them as a result.
“One of the main challenges of this form of investment is that the companies or assets are rarely priced daily, so there’s uncertainty over their daily value. For those in defined contribution schemes where members buy and sell units in investment vehicles daily this is a challenge.
“There have also been suggestions from parts of the industry that individuals should be allowed to make patient capital investments even if they have reached their pension lifetime allowance. Most people in this position will be closer to retirement meaning liquidity is particularly key if they intend to use their pension to generate an income. Furthermore, investment diversification is important for any pension investor, and forcing any pension investments above the lifetime allowance into patient capital could lead to too much concentration in a single asset.
“We are strongly in favour of an increase in, or removal of, the lifetime allowance, but would be concerned about introducing a concession just for patient capital. Pension policy and rules should be designed to support retirement provision, not made more complicated to generate investments in a minority sector, however positive this might be for the economy. Whatever the outcome, if anyone is considering patient capital investment, it’s essential they seek advice.”
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