On Wednesday, Chancellor Rachel Reeves is meeting with the heads of large pension schemes in Toronto. She wants to implement a “Canadian model” in the UK where massive retirement funds invest in equity and infrastructure.
Reeves wants to unlock the investment potential of the £360bn preview listener “true”>local government pension scheme, which has more than 6mn members but is fragmented into 86 individual funds in England and Wales.
If it was a single fund it would be among the 10 largest funds in the entire world. Reeves hopes the UK market will reach the size of the Canadian megafunds, the Maple 8 in Canada.
“The size and scope of Canadian pension plans means that they are able to invest more in productive assets, such as vital infrastructure, than we do. This was the message from the chancellor on Tuesday. Reeves’ main challenge is to achieve this consolidation.
The former Conservative chancellor Jeremy Hunt wanted to create a pension system in Britain, too. But progress was slow.
Reeves announced that a review would be conducted by Emma Reynolds, the new minister of pensions, to examine how to consolidate pension schemes and use pension funds for promoting UK economic growth.
A chancellor’s ally said that a new pensions scheme bill would create “a framework for value for money” in order to improve outcomes for savers.
Reeves, to date, has not supported “mandating”, UK funds to make investments in certain asset classes. Her allies claimed that there was “a live debate” about the issue but pointed out the fiduciary duties of schemes to invest for their members.
Reeves, while in opposition last summer, said that regulators could force smaller schemes to merge. She stated that she thought retirement plans with assets less than PS200mn may have failed in their fiduciary duties to savers. She said that it was difficult to see how the smaller funds were delivering value for their investors.
The UK politicians who are divided on the issue of immigration may not find it easy to translate the Canadian model. This includes the Ontario Teachers’ Pension Plan, Caisse de Depot et Placement du Quebec and the Caisse de Deposit et Placement du Québec.
Reeves is not interested in requiring UK funds to invest into Britain.
The investment of “productive assets” by the government has not always been smooth. In May, the Singapore-registered Singapore subsidiary of Ontario Municipal Employees Retirement System which held a 31% stake in Thames Water wiped out its investment in the troubled utility.
Reeves said at a New York roundtable of US investors on Tuesday that pension funds should be used to purchase listed and non-listed stocks, as well as infrastructure projects to offer better returns to the savers.
She said: “I would like British schemes to take lessons from the Canadian example and ignite the UK economy. This will deliver better returns for investors and unlock billions in investment.”
Reeves and Mark Carney will meet in Toronto, Canada, to discuss the best way to invest in Britain’s clean tech sector.
The chancellor has revealed that the main focus of her City of London address at Mansion House this autumn will be the partnership between government, industry, and regulators in order to achieve growth.
Reeves, in her budget for October, has effectively ruled out changing the rules to require pensioners who work beyond the age of state retirement (66) to pay national insurance contributions.
Reeves said that there was “no plan” to force pensioners to pay NICs during her trip to the US and Canada.
Allies of the Chancellor stated that “no plan” in this case meant she would not be making the change as it would defeat her goal of keeping people at work.
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