(1 day, 23 hours ago)
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Baroness Neville-Rolfe (Con)
My Lords, it is disappointing that UK pension funds now invest only around 4.4% in British assets, in contrast to between 12% and 18% in Canada. That is no longer good value, given the scale of tax reliefs in the UK. Equally, a mandatory backstop, as apparently favoured by the Chancellor, is hard to reconcile with pension trustees’ fiduciary duties to put our millions of savers first. Does the Minister agree that experience in Australia and Canada should encourage us to move forward sensibly? Does he also acknowledge that the task of balancing important domestic investment with the need to invest in the best interests of our savers is actually best left to the providers themselves, and not directed by the Government?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
I am grateful to the noble Baroness for her questions. I am sorry that she started her remarks with the word “disappointing”, because this is a really important initiative by the industry and one that the Government very much welcome. Of course, it builds on the work that the previous Conservative Government did, which the previous Conservative Chancellor began, so I hope that there is cross-party support for these steps. This is very important to our growth mission, by increasing investment in infrastructure, and it supports better outcomes for savers. As the noble Baroness will know, this is an industry-led, voluntary accord. Pension funds are choosing to do this, because evidence shows that high-growth assets can boost returns over time. We are confident that schemes are moving in the right direction, and this accord shows what government and business can achieve together, when working in partnership. The pension schemes Bill will contain more details about how these developments will be monitored to make sure that change is delivered.
Baroness Kramer (LD)
My Lords, we all want to see more investment in the UK’s productive economy, but what protection is to be provided for people with small DC pension pots who cannot risk losses and see their pensions as a savings product, not as an investment, especially if that investment is high-risk and illiquid, as envisaged in the original Mansion House accords?
Lord Livermore (Lab)
I am grateful to the noble Baroness for her question. This commitment is voluntary and led by the industry, because the industry knows and is choosing to do this—because the evidence shows that higher-growth assets can boost returns to savers over time, as the noble Baroness, Lady Neville-Rolfe, said, in line with international counterparts, such as in Canada and Australia. Their pension funds and the levels of private asset allocation in those schemes is far higher. Pension savers will benefit from this accord through diversified savings, with potentially higher returns.
Lord Davies of Brixton (Lab)
My Lords, I thank my noble friend for his replies and for the Statement in the Commons. I understand why my noble friend and the Minister in the Commons avoided tackling the issue of mandation, even though there was clearly a Treasury-inspired leak about the issue on Monday. Does my noble friend understand that with mandation of investment policies, should the Government consider it, comes responsibilities, with effectively the Government having to guarantee the returns or benefits on members’ benefits.
Lord Livermore (Lab)
I am shocked that my noble friend uses the word “leak”—I have no idea what he is talking about. As I have said, it is important that this is a voluntary commitment and that it delivers the investment promised for the UK economy. As I say, funds are voluntarily—it is industry led—choosing to do this because evidence shows that high-growth assets can boost returns over time, and we are confident that the schemes are now moving in the right direction. But equally, as I say, the pension schemes Bill will have more details in it about how these developments will be monitored over time to make sure that that change is delivered, because in the end what we all want to see is higher levels of investment.
Lord Forsyth of Drumlean (Con)
My Lords, if the Minister is right that this is an entirely voluntary scheme, why is it necessary for the Government behind the scenes to threaten to make it mandatory?
Lord Livermore (Lab)
Because it is very important that this voluntary commitment delivers the investment that is promised for the UK economy.
Baroness Altmann (Non-Afl)
My Lords, I welcome this initiative. Indeed, I would be pleased to see the Government go even further in ensuring that our long-term pension funds have faith in Britain, invest in Britain and use the £70 billion of taxpayer money that goes into pensions every year to add to contributions made by individuals and employers to benefit Britain, rather than being free to put 100% into overseas markets. But of course we need to make it more attractive to invest in the UK, and I urge the Minister to look into the possibility of using closed-ended investment companies that do exactly that kind of investment, are selling at discounts and have been hit by unfair regulation, which has stopped them being able to raise new capital and provide long-term returns of this nature for pension funds.
Lord Livermore (Lab)
I am grateful to the noble Baroness for her question. I know that she has a great deal of expertise in this matter, and I enjoyed the meeting that she and I had with my honourable friend the Pensions Minister on this exact topic—he mentioned her in his remarks in answer to this UQ yesterday in the other place, so she has clearly had a big impact on his thinking. I am pleased, and I welcome the fact, that she welcomes these reforms. She has often called for greater investment by pension funds in productive assets, which I think is exactly what is being delivered. She has called for greater investment by pension funds in UK assets, which is again what is being delivered. Of course, there is always more that can be done; I hear what she says about the campaign that she has led for many months now, and I am sure that my honourable friend will look further at that issue.
Lord Londesborough (CB)
My Lords, a number of pension providers have warned that progress will be dependent on
“a steady supply of high-quality UK investment opportunities”.
That is a big pipeline challenge, because our record of financial returns on infrastructure projects is, as we know, suboptimal. Investing in fast-growing start-ups and scale-ups, whether here in the UK or overseas, carries far greater risk. In many sectors such as tech, the failure rate of such start-ups is over 90%. Can the Minister therefore explain how these sorts of investment opportunities sit with the pension funds’ fiduciary and consumer duties to act in their clients’ interests in terms of maximising returns for pensioners without taking excessive risk?
Lord Livermore (Lab)
The noble Lord is absolutely right about the importance of the pipeline that he speaks about. The Government are playing our part in that, with £100 billion of additional public investment over the course of this Parliament. Our job as the Government is also to support the pipeline of investable projects, which is why we are getting the country building through our planning reforms; why we have ended the ban on the development of onshore wind; why we have set up the National Wealth Fund; and crucially, why we will be publishing, at the time of the spending review, the 10-year infrastructure strategy and modern industrial strategy.
The noble Lord is also right when he talks about the long-standing problem in the UK economy of the ability for growing firms to get hold of scale-up finance, which this accord will help to address. The accord will provide investment for infrastructure but also provide growth capital to a much wider range of firms. These are often smaller-ticket items, and pension funds will need them to be aggregated to a higher level, which is exactly the work of the British Business Bank.
Lord Lee of Trafford (LD)
My Lords, if the Government are keen, quite rightly, to encourage more investment into the United Kingdom, why do they still give tax relief to those with ISAs who invest in overseas equities?
Lord Livermore (Lab)
The Government of course want to see more consumers participate in capital markets and benefit from the long-term financial security that investing can provide. We are committed to incentivising greater saving and investment, and we recognise that ISAs play a very important role in helping households to build a financial buffer for a rainy day.
Lord Balfe (Con)
My Lords, having spent much of my life as a pension fund trustee, I am aware that this is not a new proposal. Can the Minister give us an undertaking that voluntary will not precede compulsory? What pension fund trustees are concerned about is being ordered what to do with their members’ money, which they are trustees of, not for.
Lord Livermore (Lab)
I think I may have covered that several times already. I do not agree with the noble Lord when he says that this is not new. For the first time, we have 17 providers signing an accord, giving a commitment from industry to bring more assets into scope, doubling the target from 5% to 10% and including a specific commitment to investing half of that in the UK. That commitment has not been given before. As I have said, the pension schemes Bill will include more details about how these developments will be monitored to make sure that that change is delivered.