Turning on five live’s wake up to money this morning I listened to an accountant tell me about Britain’s low productivity per person. He excepted financial services from this, not exactly a “mea culpa”! Infact he pointed to financial services and especially pensions as the long-term solution to our productivity problem.
I am sure that it is true that, given unlimited capital, most organisations could become more efficient, but my experience is that productivity is driven by good long-term planning as short-term funding. This desire to win is not exclusive to the South East, but I wonder if the confidence to plan for the long-term is prevalent up north . Only in football perhaps!
Toby Nangle, writing in the FT compares the UK pension system with the Canadians and asks whether inward investment by pensions in Canada is really any higher than from pension funds in the UK. There seems to be the opposite of a home bias with pension funds looking to globalise their investment footprint and not risk the risk of being concentrated in their investment in a relatively small economy.
And he goes on to question whether there are the opportunities to invest in the UK
If newly consolidated UK pension funds attempt to allocate a slew of new money to UK infrastructure investment, they may struggle. British policymakers, like their Canadian counterparts, will need to focus on supply as much as demand, if they want to boost investment.
Part of the problem with planning is getting approval. We struggle with space. Whether it is new housing or new industrial plant, the planning laws are conservative , focussing on preserving the character of our countryside and even our towns.
Nangle also points out that just as we look to invest overseas, so the overseas investment companies invest over here, they get here first. I hate to bring up that cause celebre, the British water infrastructure but here it seems we have given the cake to firms like McQuarrie who have sold it having eaten all the good bits , leaving a new set of investors with a lot of debt and sewage. The result has been irate pensioners from USS who feel they have had their savings invested for political reasons to no great advantage to themselves.
The planning application for our UK infrastructure , must have mind to the business plans of those we hand its management to. Here the role of ESG is critical.
As for the entrepreneurs who we are relying on to create new investment opportunities, I have first hand experience of the low-esteem they are held in by those who govern the pension system. While consolidation , run-on and productive finance are watchwords for pension economists, those looking to create investment opportunities around Britain are often treated with suspicion. It appears that their efforts can be dismissed with impunity by pension regulators.
I write on the day before Britain goes to the polls, in pension terms “things can only get better”.
For Nangle , the capacity or our pension system, entrenched in a process of “de-risking”, to change is unlikely. He points out that the Canadian’s per capita productivity growth is no higher than ours and that their pension funds have not invested in Canada but overseas (including in Thames Water).
His conclusion is that there will need to be state intervention to avoid planning blight in Blighty..
it’s fair for the Treasury to have some say in where pensions are invested — should they so wish. But left to their own devices it is unlikely that the shift from domestically listed stocks will halt, let alone reverse, any time soon.
I don’t see a shortage of investable stocks needing productive finance. It is quite obvious that successful British scale ups are not getting their capital from UK listings but going abroad for finance, either to American stock markets or to overseas private equity. They are not getting funded by UK pension funds. The problem is not from the demand side
Nangle is suggesting that the planning laws that govern UK pension funds are currently set against their investing in long-term assets. UK pension funds are nervous about investing in any kind of long-term equity , especially UK equity , not least for reasons of “past performance”. It is easier not to. The problem with pensions is structural.
If the investment horizons of those who design our pension plans stretch no further than a “bridge to buy out” or the signposting to an “investment pathway”, then it’s the buy-side not the supply side that is the problem.
For most corporate pension funds, the idea that they will pay existing pensions t0 maturity , let alone embark on setting up pensions for the next generation of savers, is an anathema. Only in LGPS is there a genuine ambition for pension schemes to problem solve some of the UK’s issues with productivity. Where fiduciaries can see “doing the right thing” as part of the planning process, they are proud to do it. But too rarely are the planning rules as clear as those laid out for LGPS
Too often , planning restrictions work the other way. When confronted by a pension scheme that was offering to extend the time horizons or workplace pensions, one senior regulator blogged
One potential innovation proposition – which straddles both DB and DC – needs very careful thought: a possible new offering to pay DB pensions to DC savers who transfer into it. … we, other regulators and government are continuing to consider whether a solution like this one could be supported, and we would not expect the market to develop further until this question has been resolved.
I suspect that the creation of pensions that make Britain genuinely more productive, turns on the capacity of those who control planning decisions like this one. Until we are clear about the common purpose of pensions, we will continue to struggle to unleash the long-term power of pensions.