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Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
There is no such thing as a magic cash tree. So the growth-starved UK authorities is scrabbling round for any money mendacity unused within the system which is perhaps put to productive use.
The most recent instalment is Prime Minister Sir Keir Starmer’s push to faucet among the estimated £160bn of “surplus” held in conventional company outlined profit pension schemes.
The thought is to make it simpler for trustees to unlock this pot. Extra funds, the federal government hopes, may circulate again to corporations for development investments, to scheme members to extend spending, and even keep within the pension fund however go into larger threat belongings corresponding to equities or illiquids.
This reform has been a very long time coming, however there’s a threat the cash just isn’t used as Starmer intends.
Former chancellor Jeremy Hunt recognised the potential held inside roughly 5,000 UK company outlined profit pension schemes. Due to market situations in recent times, the federal government estimates 75 per cent of those now maintain belongings in extra of the advantages they owe their members. About £68bn of the £160bn present estimated surplus exceeds a degree companies would wish to promote their scheme to an insurer.
One motive the federal government is so eager on surplus money being invested for development is that scheme belongings hardly ever are. Prior to now 20 years, amid various regulatory changes, risk-averse trustees have shifted away from equities into bonds. In 2024, the proportion of DB schemes’ investments in bonds was 70 per cent; in 2006 this was simply 28 per cent, the Pension Safety Fund says.
It’s apparent that surplus money, on the very least, may very well be used extra productively, though guidelines round which schemes must be eligible will should be watertight. The safety of members’ advantages should stay the precedence.
Whether or not permitting pension trustees to unlock funds will really translate into development, nonetheless, is a special matter.
Being allowed to do one thing just isn’t the identical factor as doing it. “Why do it?” remains to be the primary query trustees have been asking this week, pensions consultants say. Certainly, they could desire to promote out altogether. Bulk annuity offers have reached record levels, as corporations decide to promote their pension schemes to insurers, which take over duty for cost to members.
Even when the cash does change into out there, there might not be apparent locations to place it. Firms may simply determine to return funds to shareholders, a proportion of which can inevitably be primarily based abroad. It could be exhausting to be prescriptive about how funds are used.
Clearly, the following neatest thing to a magic cash tree gained’t be easy to climb. Nonetheless, even conquering the primary few branches could be an excellent begin.
