The growing calls among political parties and think-tanks to change pension rules to boost investment in the UK need to be carefully considered. While the economic rationale is clear, the proposals could raise significant unintended risks to our pension pots if the plans become reality.
The Tony Blair Institute’s proposal for £500bn UK pensions superfunds (Report, May 29) is the most recent example of this growing chorus of influential actors across the political spectrum pushing for radical change. Driving greater consolidation, creating new UK-focused investment funds and mandating pension investment in
UK companies are all seen as key to unlocking the potential of fast-growing UK enterprises while empowering smaller pension funds. However, these relatively simple ideas overlook the scale and complexity of risk inherent in markets.
Consolidation is nothing new. However, if pension funds join forces on the scale that has been proposed and invest heavily in UK assets, risk would be concentrated among a much narrower pool of pension funds and their exposure to the pound greatly increased. The fate of a huge number of savers’ pensions would become even more closely pegged to the performance of the UK economy — magnifying the potential impact of shock events if not properly managed or hedged.
With so much at stake, decision makers need to be clear on their approach to UK pensions as actions on this scale have equally large consequences.
Rules intended to give the UK economy a shot in the arm need to be balanced carefully with the long-term implications on savers’ pension pots and communicated clearly to the pension fund industry that manages our future wealth.
Bill Manahan
Institutional Investor Lead, Validus Risk Management, London W1, UK
