As part of the plan for an economic bounceback from the impacts of Covid, the Government has developed a plan intended to channel billions of pounds into infrastructure and start-up companies. It appears that a large portion of that money will come as a result of the investment of pension funds. The information in this article is not a recommendation from Questa, if you have any questions surrounding your own pension situation please contact us directly.

Pension pots to be invested in venture capital

Reports from the Mail on Sunday suggest that Treasury officials have held meetings with senior figures in the pension industry. The scheme is controversial, as sources have stated that workplace pension funds could invest employees’ pension savings as a default, being the choice that many will select when enrolling in their pension with their employer. While the choice to opt out would be available, the reality is that most workers would remain opted in by default.

With £2.2trillion in UK retirement pots, there’s a large pool of funds to be invested in start-ups, real estate and transport projects. Potentially a great opportunity for a boost to the economy, but this does come with a level of risk.

What is this new growth fund?

The new fund is called a Long Term Asset Fund, or LTAF. It’s separate from the LTIF (Long Term Investment Fund), which itself was inspired by the ELTIF (European Long Term Investment Fund). It comes as the very first proposition since Brexit of a change to the UK’s fund regime, and is certainly an interesting one. It proposes to open up asset classes and investments which historically have been reserved for professional investors to pension investment. With the possibility to invest in illiquid assets also comes the availability of the management tools to do so. Ultimately, it would enable pension funds to invest in a large capacity in venture capital.

Officially the LTAF is being touted with the intention “to encourage UK pension funds to direct more of their half a trillion pounds of capital towards the UK’s economic recovery and to enable investors, particularly Defined Contribution (DC) pension schemes, to more confidently invest in illiquid assets (such as venture capital and infrastructure) than they can using existing fund structures.” 

IS this good or bad for people with pension pots?

Well, only time will tell. In theory the fund will open up new opportunities for pension investment returns whilst benefiting the nation’s economy and infrastructure. There is however, a level of controversy and debate. Critics have suggested that pension savers may be unknowingly pushed towards investments which are hard to sell. The Investment Association, an industry body, warns of the importance that “savers understand that they are making a long-term commitment to invest, and that they may not get their money back quickly.” 

It could make it more difficult for retirees to access their money quickly. One pension boss gives HS2 as an example. “If we’re going to invest in HS2, it’s not anticipated that we can sell a bit of HS2 to take out our money tomorrow if we retire.” 

The Government has also revealed that the limit on workplace pension charges will be relaxed from October to allow workplace default funds to more easily invest in these illiquid assets. This however, could lead to an increase in the charges on pensions. The Chief Executive of Legal and General, Nigel Wilson, appears to have high hopes for the fund. He has said that LTAF could “deliver better returns” for pension savers and that it “may evolve into a useful instrument, but we also need a change in mindset and some powerful nudges – possibly even soft compulsion – to ensure pension trustees and their advisers engage with productive finance and inclusive capitalism.” 

At Questa Chartered, we have a wealth of experience in helping individuals and families make provision for their future. We will continue to update you with important developments, and if you have any questions please don’t hesitate to get in touch.