The good growth blog: Are we finally on the cusp of a pensions revolution?

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There has been a flurry of activity in the last week, all on the same topic, and after what seem endless reviews and consultations. What am I referring to? At a high level, deregulation, at a more practical level, empowerment. In particular, this includes the long debated replacement of Solvency II with Solvency UK; changes to the fee cap for DC Pension funds; the introduction of LTAF's; exploring ITV's and changes to the listing rules; work of various related bodies including the Lord Mayor with his proposed Future Growth Fund; the CMIT led by the LSE; the new Investment Delivery Programme under the auspices of the ABI; and the idea to turn the PPF from buyer of last resort of failed DB Pension schemes into a pro-active consolidator. More acronyms than you can shake a stick at! Unless you are in the weeds, as some of us are, this is likely to be greeted with a shrug of the shoulders as all too technical and rather boring. But it really isn’t boring .... the decisions that we make today will impact the future investment landscape for the UK and with that the fate of savers, pensioners, and the underlying growth rate of the economy. That really does matter. If not the current focus on a 'mortgage time bomb' will be replaced with a far bigger and more widespread 'pensions time bomb' in the years to come.

Stripping away all the jargon, perhaps it is useful to look at some high level issues that increasingly confront us as a nation. Put simply, we are not investing enough and the best indicator of that is the level of investment in equities, both listed and unlisted, both institutional and retail. The average UK pension fund had a holding of nearly 60% in UK equities in the 90's. Today that is less than 5%, with the percentage in unlisted companies next to nothing. A recent report highlights that individual savers in the UK (well before the recent rise in interest rates) held the bulk of their savings in cash ... some ￡1.8trn, and that UK shares held by UK residents has fallen from more than 50% in the 90's to less than 12% today, way less than all other comparable countries.

Does this matter? Absolutely. The UK is increasingly an outlier for all the wrong reasons. We are not only growing more slowly than we should, or can, but our savers will not generate the higher level of returns that could be achievable. This is not all about 'snake oil salesmen' from the City. We only need to look to similar economies to the UK, namely Canada and Australia. In those two countries, with a very similar cultural dynamic, there are two key differences. Firstly, they have consolidated their pension funds into huge investment pools: the Pension Plans of Canada like CPPIB, Ontario Teachers and OMERS, and the Super Funds of Australia like Aussie Super and the Future Fund. There is currently no UK equivalent. Secondly, the average Canadian and Australian has a much more in depth knowledge, and interest in, their savings - where they go, how they are invested, and how well they are doing. There is a lot of talk currently that we need another “Tell Sid” campaign in the UK, successfully used in the 1980’s to promote wider share ownership. It certainly feels that we need to do a lot more work to improve understanding of pensions and savings. Whatever you may feel about “Just stop oil” they have raised awareness of a particular issue. Maybe the time has come to “Just start investing”!!

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I have copied below some recent articles to give some wider context. This will all culminate on Monday at the Mansion House, the grand setting for the Chancellors speech to the City. It will be the occasion for him to bring his Edinburgh Reforms to life, and I hope the firing gun for a busy few months ahead of the Autumn Statement, turning warm words and general commitments from our largest institutions into something far more tangible. There is an equally important role for those organisations directly under government control, namely the British Business Bank, Innovate UK and the UK Infrastructure Bank, to be given the leeway to do more. This really is the time to galvanise public private partnerships in the most dynamic way.

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Whilst the UK sadly missed the boat in the 1970’s with North Sea Oil and does not have a Sovereign Wealth Fund like Norges in Norway as a result, now is the time to come up with our own version. That will be through a combination of redirecting a small portion of savings from individuals; from DC pension pots either directly or via the asset managers who invest on their behalf; from insurers balance sheets; and from Local Government Pension Schemes. That will require both the boldness and ambition to want to do this from all involved, ?as well as new and creative ways to disrupt existing models. As the government and regulators look towards ‘value for money’ as opposed to simply ‘lowest cost’, the private equity and venture capital industry will need to think how they can access these potentially huge pools of savings in a mutually beneficially way. If we can do that, then just maybe we really can turn the UK into a Science and Technology Superpower.

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