Ros Altmann: Why should the government keep funding £70bn a year for pension funds to invest in other economies and not our own?
UK schemes should not expect taxpayer subsidies unless they are willing to invest in Britain, Baroness Ros Altmann says.
The former pensions minister said taxpayers currently provide around £70bn a year to incentivise long-term investments by British pension funds, but noted the money helps other countries, not Britain, something she said weakened UK growth.
And she noted that, while pension managers and trustees used to invest most of their assets in equities, with very high allocations to UK listed company shares, for the past 25 years or so they have continuously reduced UK equity exposure.
She said this sell off had damaged Britain's companies and financial markets – leaving UK shares undervalued, vulnerable to takeovers, less able to obtain equity finance and undermining confidence in our markets.
Altmann said the UK has the second largest pool of long-term investment assets in the world, but this money no longer supports the UK.
She said: "Why should the government keep funding £70bn a year for pension fund managers to invest in other economies and not our own?
"Pension fund managers seem to have lost sight of the scale of taxpayer contributions they benefit from each year. £70bn is far larger than the country's entire defence budget (around £52bn) and policing (£18bn). How can it be good value for taxpayers, to see such huge sums invested overseas and not here?"
Altmann added: "Taxpayers should not be helping to increase pension managers' funds under management, and facilitating overseas investment, especially when the UK urgently requires increased long-term investment to boost growth."
She said the government should require pension funds that wish to receive tax relief to invest around 25% of all new pension contribution into UK growth assets – a proposal she has mooted previously – but one she said that would help pension managers recognise they are managing public money, as well as private contributions from employers and workers.
Altmann said: "Putting at least 25% of the new contribution flows – not the stock of existing assets – into UK investments would be the quid pro quo for tax relief. The funds would choose for themselves which assets to buy – including UK listed equities, private equity, start-up or scale-up businesses, real assets, housing and so on."
She added this proposal could create a "virtuous circle" and boost domestic investment, at no additional cost to the government. But she said this was not mandation.
Altmann explained: "Requiring at least, say, 25% of the money to be invested in Britain is incentivisation, not mandation. Any pension fund managers or trustees who don't want taxpayer money added to their pension contributions, can invest 100% overseas, no problem."
She concluded: "I believe in Britain and want the country to thrive: Surely pension scheme members would generally like their contributions to help Britain's long-term growth, especially as most people plan to spend their retirement here and should benefit from living in a better country if UK companies and markets are stronger.
"Pension funds could be used as the silver bullet to restore confidence in Great Britain – I hope the government will be bold enough to do this."
