The government’s proposed pensions deal will not boost growth unless better UK investment opportunities are put on offer, the boss of one of Britain’s biggest funds has warned.
In an interview with City AM, Benoit Hudon suggested a stronger pipeline of UK assets was needed as current options did not deliver good enough returns for savers.
The Labour government is poised to set a target for pension funds to invest five per cent of their assets in domestic projects by 2030 under a new agreement dubbed ‘Mansion House Compact II’.
The Mercer UK chief executive, who manages assets worth £648bn, called on Chancellor Reeves to roll out a clearer strategy on projects it wishes to deliver as a strong selection of assets was a “precondition” for the new agreement to work.
“Our view is there simply isn’t a pipeline at the minute to drive good returns for members that are equal or better opportunities available elsewhere when you get to that sort of scale,” Hudon told City AM.
He suggested pension funds needed to be given more time for investments in private capital to be built up as he said there was a “lot of work to be done” on making UK investment opportunities more attractive.
“It all starts from where does the UK want to go,” he said. “Where does the government want to deploy assets?”
“Is it green farms, trains, transport, defence – what is it? It’s not for us to decide that. It’s for the government to decide what kind of infrastructure or projects they want to prioritize.”
He also urged the government to introduce tax incentives to relieve some of the costs of investing in the UK and in turn generate higher returns.
The Pensions and Lifetime Savings Association (PLSA) has led calls for the government to reverse a key Gordon Brown-era policy that removed tax credits on dividend payments made by pension funds on UK share purchases.
Hudon said its re-introduction could be effective at drawing investment into the UK alongside closer agreements that see the government reward investment in infrastructure projects at home.
The Mercer UK boss formerly advised the Canadian government on its pension reforms, which is often cited as a point of reference for Chancellor Reeves.
He said the UK government would do well to follow examples in Canada and Australia where mandates on investment levels in local infrastructure are not set.
“As much as we believe that it’s a good thing to promote investments in the local economy and to use the capital – the trillions invested in pension funds in the UK – to drive the economy forward, mandation risks coming in the way of delivering the intended outcome [for savers],” he said.
