Pension schemes in Britain will have to disclose by 2027 how much they invest in UK assets, the finance ministry said on Saturday, as it piles pressure on the sector to generate better returns for savers and help companies grow.
Finance Minister Jeremy Hunt last July set out the Mansion House Compact, whereby 10 defined contribution (DC) pension funds, including Aegon, Legal & General and Aviva, voluntarily committed to investing at least 5%, or about 50 billion pounds, in life science, fintech, biotech, clean tech and other types of high growth unlisted UK companies by 2030.
Hunt on Saturday unveiled the next leg of the compact aimed at partly reversing the decades-old trend of pension funds opting for safe government bonds that typically have lower returns than more risky start-ups.
The ministry also wants to help unlisted companies grow in the hope they will go public to boost the UK capital market as London battles New York, and the EU since Brexit, for listings.
"British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses," Hunt said in a statement.
"These requirements will help focus minds on how to improve overall returns and outcomes for savers."
The plans target defined contribution pension schemes and are subject to a public consultation by the Financial Conduct Authority.
Currently, just 0.5% of DC scheme assets are invested in unlisted UK companies.
The "value for money" disclosures will include details to allow employers and savers to compare the performance of their scheme with others, putting trustees and pension managers under the spotlight.
Schemes performing poorly would not be allowed to take on new business from employers, with the FCA and The Pensions Regulator intervening, such as by consolidating the schemes into larger players with the firepower to invest in unlisted equity.
The FCA said it has worked closely with government on a consultation that it will launch in spring on a "consistent, clear approach to measuring performance, services and costs" in workplace pensions and where they invest.
"That transparency is vital so providers make sure pension savers are in funds that deliver value for money," an FCA spokesperson said.
