One policy announcement that is pretty much “nailed on” is that the Autumn Statement will introduce a Government endorsed Growth Fund to be run by the British Business Bank.
The Growth Fund is a very good idea that workplace pensions are already undermining for a number of reasons.
It is a good idea because it harnesses the resource of the British Business Bank to research and do due diligence on micro-companies that pension schemes such as Nest do not have the time for. It is also a good idea because the companies who are incubating, need development capital to become the next generation of British success stories.
But it will face substantial headwinds on a number of counts
- Incorporating allocations to this expensive to run investment strategy will put up prices for workplace pensions that invest in it.
- The value of such a fund will emerge over time but in the short-term it will make it harder for workplace pensions to compete for new business.
- The fund is likely to be marketed in such a way that it will be hard for workplace pensions to extract much value from its integration into their default funds.
So like many good Government ideas, it will meet headwinds from private pension companies for whom, commercially, this opportunity is best avoided.
Whether they like it or not, the workplace pension teams are now honour-bound to see through the promises made by the bosses to fulfil their Compact to deliver saver’s money to productive finance.
It is up to blogs such as this to make it clear that productive finance is not “private credit” and does involve taking risks which, were they taken in isolation, could result in material loss to savers funds. But the Compact only commits those workplace pension providers who sign up to it , to commit to 5% of workplace pension money to be invested in such long-term capital,
Many of those who run the workplace pensions see little immediate upside in investing in a Government-backed Growth Fund. They see the risks they take as unrewarded and the investment as a handicap to their commercial activities.
Except these kind of short term views may cut ice internally , or in the pension bubble, If articulated in a wider way, including to Government, these views look short-termist and anti-social.
Workplace pensions are being offered a hand to get invested in productive finance. They have been given several helping hands, including the cashflows from auto-enrolment, they would do well not to bite the hand that is feeding them.
Workplace pensions should do more than welcome this new Growth fund, they should allocate a meaningful proportion of their default funds into it.