A leading think tank has said that Britain should overhaul its pension system in order to create “superfunds”, which can control large companies and encourage business investment.
According to economists, the UK’s long-term decline of capital expenditure by businesses is one reason why its living standards are not improving at the same rate as those in other wealthy countries.
In a report released on Thursday, the Resolution Foundation stated that shareholders and employees should put more pressure on managers to invest long-term.
The UK’s poor investment performance is often attributed to Brexit or an unfavorable tax regime. However, the think tank said that the primary reason for the UK’s low investment was because too few managers were willing to invest despite the high rates of return.
The report noted that listed company ownership was widely dispersed, and most of it was based outside the UK. Workers did not play the same formal role as workers in other parts of Europe in terms corporate governance. The UK managers were therefore under a “rarely low level of pressure”. . . Focus on Long-Term Growth”.
The think-tank stated that “too few British companies have large shareholders who are able to hold the management accountable for having a growth strategy over the long term.”
The Resolution Foundation called on ministers to introduce a number of reforms that would encourage consolidation in pensions. This included creating a smaller, more active managed fund, which could hold a large enough stake in listed companies in order to influence the strategy and engage with management.
To help consolidate pensions, it would be helpful to allow the UK Pension Protection Fund (which currently absorbs pensions when an employer is insolvent) to purchase legacy defined benefit pension plans that are sold to insurance companies today.
The Resolution Foundation called for the government to “turbo charge” its existing policies in order to consolidate the thousands of defined contribution pension plans. It said the larger funds would then be able to better invest in riskier assets such as UK equity.
These proposals are based on the ideas of other think tanks. This includes a Report published last month by The Tony Blair Institute.
In March, Jeremy Hunt announced that he will introduce reforms this autumn to encourage consolidation of the pension industry and allow funds to take more risky bets with unlisted companies.
Rachel Reeves wants to consolidate UK Pension Funds and force them to invest into a Growth Fund for British Companies that are growing fast.
Greg Thwaites of the Resolution Foundation said that simply increasing the amount of capital available or “tinkering endlessly” with the tax system would not work. The government should instead “do much more to encourage companies to invest by creating pressure both from above, via investors, and from below, via their employees”.
The Resolution Foundation urged Hunt also to introduce an obligation for larger and listed companies to have worker representatives on their boards and to make the temporary tax breaks on capital expenditures announced in the budget of March permanent, while committing itself to keeping the corporation tax regime steady.
The group also called for the relaxation of planning regulations that, according to them, hindered commercial and residential development. They also said they prevented the creation of high-tech clusters as well as onshore investments in renewable energies.