Myles Pink, partner at consultants LCP said: “The trustees of DB pension schemes have long term responsibilities to pay their members’ pensions well into the future. As long term investors of many billions of pounds in capital, trustees are increasingly seeking stable returns from UK businesses and projects that focus on balancing commercial success with long term sustainability and social responsibility. An “investment Big Bang” would therefore be hugely welcomed by this important community of investors in the UK. But this must be more than just warm words from government. Trustees are willing to invest for the long-term but need the government to remove the barriers to this type of investment and to help ensure there are suitable projects to invest in”
Gareth Mee, Global Investment Advisory Leader at EY, comments: “There has long been a valuable synergy between the asset return needs of pension funds – which are long-term, reliable, and inflation-linked – and the attractiveness of investing in large UK infrastructure, such as housing, transport and utilities. The challenge has always been how to make these assets accessible to pension funds with sufficient flexibility in order to manage complex cashflows, not least because many schemes are too small to justify or be able to invest directly into large and illiquid assets. Accelerating progress to help pension funds invest in longer dated private assets could go a long way to improve returns, and ultimately will benefit savers and sponsors of DB pension schemes.
“Different types of schemes have different barriers to using long-term illiquid assets, so there are a number of key points to consider. For DC schemes, a more flexible charge cap could be implemented, for example. For many DB pension schemes targeting a transfer to an insurance company, their time horizon would be much shorter and investment in illiquid assets doesn’t meet that timeframe.
Greater flexibility over assets that could be used to pay insurance premiums could help bridge this gap. Covering all schemes, one of the main barriers to investment from pension schemes is the level of complexity, diversity, risk and reward of the potential investments, and this must be addressed. The level of expertise and manpower needed is significant and particularly challenging for smaller schemes that don’t have the size of team to invest directly or to oversee the investments made. Greater consolidation in the market could help more schemes access these types of investment and therefore increase the overall levels of assets invested.”
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