Doing something useful with our money


Pension Funds like bonds, they provide a regular income stream and some bonds pay income for twenty years or more, a bit like lending money as a mortgage. Which begs the question “why don’t pension funds lend money as mortgages?”.

Well the short answer is “because that’s what banks do”, which is all very well but banks haven’t been doing this very much lately. The US securitisation market remains large, but in Europe issuance is now a quarter of its size at the 2008 peak.

What this has meant is that people in Britain haven’t been getting easy access to mortgages and pension funds, much as they’d like the secure income streams, mortage lending provide, haven’t been investing in these banking securities.

It was a heartening, as I contemplate another night helping out at a Crisis centre to read in the FT that the Dutch have found a way round this problem

Mr van Hessen, who had worked for NIBC, a Dutch investment bank, decided to fill that gap. His idea was to bypass the banks and encourage other kinds of investors — pension funds and insurance companies — to enter the residential mortgage business.

These institutional investors, which typically invest in bonds and other financial securities, were happy to listen to his pitch. With bond yields being held down by the post-crisis policies of the central banks, the notion of earning a higher return from mortgages was appealing.

Of course this means cutting out the Banks, who are just another link in an ownership chain but the Banks don’t seem to mind

Post-crisis regulations have contributed to the rise in non-bank lending. Solvency II, the EU-wide regulation for the insurance industry that came into effect at the start of this year, discourages investment in asset-backed securities.

“From a Solvency II perspective, the securitisation market just doesn’t work,” says Frank Meijer, head of asset-backed securities and mortgages at Aegon Asset Management, which manages assets for the insurance company. “What do work are whole loans, especially residential mortgages.”

Do we mind where the money comes from?

The clamour for any kind of Government scheme which helps us get ourselves or our kids on the housing ladder, suggests that we aren’t too fussy how we do it, the end justifies the means.

These numbers suggest that the majority of adult people in this country do not fall into the cosy stereotype of Thatcher’s Britain.

Frankly, the distribution of privilege is massively skewed towards those who can drive, travel and who can buy a house. These people are also those most likely to have a decent pension.

To put pension funds to their proper use, I suggest that they are used not just to provide a string of payments to their beneficiaries, but a lot of help to those who aren’t. The progress in the Netherlands is heartening

 Last year, a group of Dutch companies, including Syntrus Achmea, launched a scheme to lend €3bn of mortgages to the 2.5m individuals paying into the country’s health and welfare pension fund. The fund would also invest in the loans. That meant borrowers were effectively investing in their own housing debt.

In this country, owning a share of a pension fund is becoming the social norm, auto-enrolment will see this trend continue for the rest of the decade. It is important that we think of ways to reinforce the value of these workplace pensions and using these pensions to create house-owning opportunities, for those not on the housing ladder, seems a good thing to do.

Let’s hope that the slow progress towards investing with a social purpose that we’ve seen in recent years, can be accelerated and that UK pension funds, like their Dutch counterparts , can see more ways to help (rather than hinder) our economic and social progress.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Doing something useful with our money

  1. John Mather says:

    Henry There is a market for securitisation with covered bonds which have an RPI kicker at the maturity. The essence of the successful transaction is a quality counterparty
    However liquidity is an issue which forces these performing investments into the Sophisticated only regulatory category which denies performance to the retail customer Your mortgage idea may have similar constraints

    This further exaggerates the wealth divide

    Funds might consider time segmenting assets into current, replacement of current and legacy

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