New report finds mixed support for domestic pension fund investment drive

A new report, ‘UK Pension Schemes and Productive Finance – a framework for effective intervention’, produced jointly by Frontier Economics and pensions consultants LCP, examines the case for recent UK Government ‘productive finance’ policies.

These policies aim to increase UK pension schemes investments in the UK economy, particularly in areas such as infrastructure, hi-tech businesses and start-ups.  

The report finds that:

• Big differences in investment strategies between UK and other countries’ pension schemes, for example Australia, are driven more by the much greater scale of these schemes compared with the UK, rather than by a general unwillingness by UK schemes to invest locally.
• As UK schemes grow, they will in any case tend to diversify, investing more in the sort of assets that the Government wishes to promote, without needing to be forced to do so. Some larger UK schemes already have significant allocations to private markets and infrastructure, and more are set to follow as they grow.
• Just because pension schemes in other countries allocate a certain percentage to domestic ‘productive’ assets, it does not follow that this is the right answer for UK schemes.

Before intervening, in line with best practice, government should identify what market failures it is trying to address. On this basis, the report finds that the strength of support is mixed across the range of productive finance policies that have been pursued in recent years. 

The full report is available here.

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