Coercion mandation or nudge?

Back in 2018, Rachel Reeves published a long and very earnest document which this blog did not pick up on.

Why should it – back then Reeves was an obscure opposition politician. But today it gives us a fascinating insight into our Chancellor’s thinking and I read it last night. It wasn’t till I got to page 51 that my eyes nearly left their stalks. Reeves proposed

that 20 per cent of all pension contributions be invested in
employment-creating opportunities in exchange for the tax
reliefs currently available to pension funds. This could start
with local authority pension schemes where the Greater
Manchester Pension Fund leads the way investing in local
infrastructure and housing schemes.

These reform strategies could raise over £20 billion per
year of tax revenues and a further £20 billion of investment
funds which could be used to build up the proposed Sovereign
Wealth Fund (Murphy 2016). The guiding principle for tax
reform is that it should be fair in order to raise revenue but
not punitive to deter enterprise and competitive markets.

Those familiar with the current briefings put out by the Treasury will be familiar with the £20bn figure.

But , until it was pointed out to me by a notable national journalist , I had not considered that the incentives to contribute (tax and national insurance relief) might be withdrawn if a productive asset allocation was not set.

This might make some sense of the recent pensions consultation on value investment that splits those pensions that are allowed, within the guidance of the TPR’s funding code, to invest for growth (LGPS and DC pensions) and those that cannot – mature DB plans aiming at low dependency on a sponsor.

My suspicion is that the strongly articulated views of the 2018 Rachel Reeves could bear fruit in the coming budget and that the alternative for master trusts and other large DC schemes and the LGPS, to adopting productive finance at these kind of allocations , may be the loss of tax privileges that could make them unaffordable to sponsoring employers.

This is rather relevant to my morning, I am stuck in a rather soul-less spa hotel outside St Albans with 200 private equity COOs and am to give what is promoted as a keynote on pensions – though I suspect it will be a pleasant fireside chat with my host.

It strikes me that the statement that 20% of all pension contributions be invested in employment created opportunities  in exchange for the tax-reliefs currently available to pension funds will both enervate and appall my audience.

That the private markets community with whom I had supper last night, might consider a Labour Chancellor there chief originator of new business , seems unlikely. But that may turn out to be the case.

That she may take with one hand and give with another , I see as very likely. The statement linking productive finance to tax-relief on  page 51 is preceded by

40 per cent of UK wealth is held in private pension funds.
To combat this inequality, higher rate pensions contribution
reliefs could be restricted

and followed by

The guiding principle for tax reform is that it should be fair in order to raise revenue but not punitive to deter enterprise and competitive markets.The right balance should minimise avoidance and evasion.

The hand that giveth also taketh away

My message to the COOs I’m speaking to this morning will be to prepare for a Tsunami of funds arriving from pension funds while looking out for your own fund, which may not be quite what you thought it, from November 1st.

To pension funds, the message may be “comply or die”, to these masters of the univers I talk with today, the hand that feeds has a mouth that bites