We have been hearing a lot recently from the new Labour government that their big plan to ‘fix’ the UK is to kickstart economic growth.
Their plans include, a national energy company, more housing and a national wealth fund.
But where will all the money come from to fund these projects? We know the UK’s finances are in a bit of a mess.
This is where pensions come in.
There is over £2trillion in UK pensions and the government wants more control over where this money is invested.
UK Pensions investing in the UK
According to Charles Hall of Peel Hunt, over the last 25 years the UK pension market has gone from owning around 40% of UK assets down to around 4%.
There have been massive outflows from UK pensions investing in growth assets. Instead, money has gone into fixed interest investments (bonds) and overseas equity.
This has provided UK pension savers with excellent returns in an era with fantastic US technology companies disrupting markets and changing the way we work and live.
But it’s not been such great news for the UK as a country.
Growing companies need capital to continue growing and UK companies have been starved of capital.
This has led to many of our greatest upcoming UK companies being sold off to foreign investors.
This has also had an impact on the UK stock exchange with many new exciting UK companies preferring to list in the US where they can achieve much higher market valuations.
Mansion House Reforms
So, what’s the solution?
Well the government, starting with the Conservatives and their Mansion House Reforms and now being picked up by Labour is to encourage UK pensions to start investing more in the UK again.
One of the big ways the government plans to do this is by facilitating more investment into UK private equity.
The UK private equity market has always been hard for UK pension savers to invest as there is no easy way to trade shares in businesses that are unlisted.
The government is now working with pension providers to bring more liquidity to this market.
It seems unlikely this will be achieved on a large enough scale to make a meaningful difference.
We have seen with pension funds that invest directly into property that when things get tough and there is a large demand for money back, these funds suspend. This is because they can’t raise enough money for withdrawal requests quick enough.
Also, there are only so many quality UK private equity companies, we don’t really want to see a case where so much money from pensions goes into UK private equity that the not-so-great companies get funding but then ultimately fail and lose investors all their investment.
Other plans from the government have recently been announced in the King’s Speech and specifically via a new Pension Schemes Bill.
Measures include:
- Consolidation of smaller pots.
- A new ‘Value for Money’ framework policed by the Financial Conduct Authority.
- New ‘Retirement Income’ products.
What’s clear is that the government want more control over how you invest your pension money with the aim of more being diverted to the UK.
It’s not just pensions that are in line for changes.
In Jeremy Hunt’s last Budget, plans for a new British ISA were announced, offering a potential extra £5,000 ISA allowance for investment into the UK. Full details are yet to be finalised on this and Labour have yet to confirm if they will proceed with this.
Your pension strategy
So, what do you need to do to get ready for the changes coming down the track?
Well, you should definitely start taking ownership of your pensions. If pensions are something you have tended to just leave and let it do its thing then now is the time to start getting interested.
You need to start being clear on how you want your pension invested before the government make the choice for you. Which is likely to include a larger proportion invested in the UK and possibly non-liquid UK private equity.
A more prudent approach is to remain diversified, look globally at the best quality companies and funds.
If you are to look at UK companies, look for a fund that picks innovative companies shaping our future. There is a good chance long term growth will follow.
Carl Roberts, Director
If you want to learn more about this topic, please find the link.
More information about our fund the YFS Intelligent Wealth Fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
