The government is in talks with insurers about a pledge to invest billions of pounds in start-ups and infrastructure projects, with the agreement intended to form a central part of the Chancellor’s Mansion House speech next week.
(Bloomberg) — The government is in talks with insurers about a pledge to invest billions of pounds in start-ups and infrastructure projects, with the agreement intended to form a central part of the Chancellor’s Mansion House speech next week.
Several large insurers are preparing to agree to invest about 5% of the defined contribution pots they manage, whose retirement payouts are based on investment performance, according to several people familiar with the matter. Chancellor of the Exchequer Jeremy Hunt is due to give details of the plan in his speech to City grandees on July 10.
The level of commitment over time could be in the tens of billions of pounds, short of the £50 billion ($63.4 billion) pool proposed by Nick Lyons, a finance veteran who is currently serving as Lord Mayor of London. But the government hopes the pledge will nonetheless kick off reforms which could see much greater investment in UK growth assets by the country’s pension funds.
The plans are not yet final as negotiations over the so-called compact agreement are ongoing. Firms are waiting to see the Treasury’s final wording before committing, according to two of the people. A range of objections have been raised, prompting the government to drop a possible plan to mandate firms to hand over a slice of the money they manage.
“We have the opportunity to boost returns for British pensioners by increasing investment in the UK’s highest growth sectors,” a Treasury spokesperson said. “This will also unlock billions for our most cutting-edge businesses and ensure they can access the finance they need to scale up and list in the UK.”
Alongside pension reforms, Hunt is expected to lay out next steps on the government’s Edinburgh Reforms, the list of innovations announced in December to boost competitiveness and modernization of the UK’s financial markets after leaving the European Union. There is likely to be an update on a review about payment for analyst research by lawyer Rachel Kent.
Despite the pressure for deregulation from many in the Conservative Party, the chancellor may also stress the need to retain high standards in the UK as one of its key international advantages, echoing the stance taken by Prime Minister Rishi Sunak, when he was chancellor, in his Mansion House speech in 2021. That would answer concerns asset managers have expressed about potential plans to water down rights such as votes on related party transactions.
The pension reforms follow a series of bust-ups, including over potentially rolling up defined benefit pensions — which have a fixed payout in retirement — into the Pension Protection Fund. That idea is still being considered in some government circles, but is expected to face opposition from the Treasury because it could require billions of pounds of investments to be underwritten by taxpayers, several people said.
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But progress has been made over the investment commitment by insurers partly in return for the government pressing ahead with reforms to the sector’s Solvency II capital rules, several people said.
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