There was enough in Rachel Reeves’ first speech to the Labour Party Conference as Chancellor to make pension people’s ears pick up. Though there will be some tinkering with the way that the Government measures the value of its investment for growth, the Chancellor ruled out breaking the fiscal rules she inherited. Though she wants more investment in the economy she has precious little room to do so through Government borrowing , the money must come from outside. Three times more must come from the private sector as the public and pensions looks directly in the line of Reeves’ intent.

Listening to Reeves talk on the Newscast Podcast after the event, it’s clear that she’s intent on incentivising the private sector, including pensions to invest. Whether such incentives are negative (damned if you don’t) or positive (blessed if you do) , the Government is clearly in the business of intervening. Reeves is not so “free market” as her predecessors.

She has marked the cards of the large occupational DC schemes (find a way), LGPS (do more) as the targets for the pension investment review. The corporate DB sector, which still accounts for the bulk of pension assets seems to have escaped scrutiny in stage one of the review but , since the election, we have already seen guidance from the Regulator on DB consolidation and run on and we were told by Neil Bull at a Scottish Conference last week that we could expect more.

Intervention in the pension

Government engagement in pensions seems to have shifted from individual awareness to an awareness that in their generality, pensions have the capacity to move the dial on investment in the UK in a way that few other capital markets can.

“Pension Reform” , as Reeves mentions it, is not yet about adequacy of individual outcomes but of the collective clout of big schemes where “billions” replace millions.

To date, and rather unimaginatively, we have called on Government to pay us to invest via the taxation system. This is an expensive and inefficient way of doing things. Better to reform the means of investment so that fiduciaries choose to invest in the UK for reasons of long-term growth.

To mobilise this array of money to kick-start growth in the UK economy, the Government must find better ways of deploying capital when it comes its way. Gill Plimmer, writing in yesterday’s FT confirmed that

The UK Infrastructure Bank has invested a fraction of the £22bn of taxpayers’ money made available to it since its launch, even as the Labour government has promised to give it an extra £7bn.

Since its founding in 2021, the UKIB has invested £4bn of the funds apportioned to it on private sector projects addressing climate change or driving economic growth.

Despite MPs criticising the bank last year for “reinventing the wheel” by funding projects already backed by private capital, the government in July pledged the UKIB an extra £7.3bn via a new National Wealth Fund.

Government initiatives have been notorious for “dry powder”, the practice of keeping money on deposit rather than deployed where it is needed. Pressing the “send” button is clearly an issue for those charged with releasing money and the counterfactual is of course the mis-use of public funds at the time of the pandemic.

Maybe the answer is for “funds” to give way over time to direct investment where pension schemes deploy their money in their projects without the need for a third party.

But for now, we need ways to get money to where capital is needed , quickly and inexpensively.

Perhaps the best incentive to pension funds is to show them ways to deploy their capital so it becomes productive immediately, reform of the buy side is as needed as incentivisation of the supply side.