In its next phase of post-Brexit reforms, Britain will attempt to persuade pension plans to spend billions of pounds on infrastructure and start-ups, despite the fact that Thames Water’s financial difficulties raise concerns about such investments.
On Monday, British Finance Minister Jeremy Hunt will outline the government’s most recent ideas for releasing the money from pension plans and putting it to use in the economy.
Britain is attempting to reclaim its place in the global financial community as it deals with the effects of leaving the European Union’s single market on one of its most significant industries.
During his annual speech to financial grandees at the City of London’s Mansion House, Hunt is anticipated to reveal a list of insurers and asset managers who have agreed in principle to invest more in alternative assets, according to a senior industry source.
The long-trailed program of the Conservative administration aims to convince pension funds to allocate a percentage of their funds to infrastructure, start-ups, and “green” technologies.
However, independent pension adviser John Ralfe warned that the issues at Thames Water, which is struggling to survive under $14 billion in debt, would disgrace some pension plans that had made significant investments in it.
It’s bad news for a government that is urging businesses to invest in infrastructure, according to Ralfe.
Hunt’s statement drew no immediate response from the finance ministry, but the pensions sector has already stated that it opposes obligatory investment requirements.
A second senior industry source expressed concern that some proposed reforms might put older, so-called defined benefit pension plans in needless danger, albeit there was some support for voluntary targets on defined contribution plans with less assured member payouts.
These goals would entail investing 5% of a pension fund in infrastructure and 5% in venture capital, but because of their complexity, they might result in higher fees. In the fall, a public consultation on more concrete proposals is anticipated.
“They appear to be fumbling around for a position that could help them get support. But major legislation would be needed for anything this significant, and frankly, I don’t think they can get it all done before an election,” the person added.
Time is running out to introduce new legislation because elections in Britain are anticipated for the following year.
The most effective course of action, according to another executive at a global asset manager who also declined to be named, would be to combine pension pots in Britain’s disjointed savings industry and model the “superannuation” pensions system used in Australia. However, this could take some time as previous attempts made only slow progress.
This source stated that “nobody forced the Australians to invest in alternatives,” and that larger pension pots would probably be more willing to dedicate a percentage of their funds to riskier asset classes.
Brexit’s effects
Brexit effectively shut off Britain’s financial services from the EU, with Amsterdam replacing London as the largest location for share trading in the area.
The decision of UK chip designer ARM to list in New York rather than London has increased pressure on Britain to improve the City’s appeal as a major financial hub.
Hunt’s speech will mark the beginning of a new phase that will also feature the results of a report that is anticipated to make recommendations for ways to relax so-called “unbundling” requirements that were carried over from the EU. An initial round of reforms is already underway.
To encourage additional listings, these regulate how much banks charge consumers for conducting business research. Already easing its own version is the EU.
A report on digitalizing the processing of stock and bond transactions is also anticipated to be updated; this report is anticipated to advocate for a fully paperless transaction trail and urge for improvements in how businesses interact with their investors.
Hunt might reveal whether Britain plans to follow Wall Street’s lead and cut the time it takes to complete a stock trade in half to one day in order to improve efficiency and reduce costs on banks, the source added.
