Is Rachel Reeves' pension scheme shake-up a welcome initiative?
Dr Keith Arundale shares his insight on Reeves' Mansion House speech
Chancellor Rachel Reeves recently gave a speech at Mansion House, offering her new strategy for economic growth.
Dr Keith Arundale shares his insight and asks whether the Chancellor's plans are worth the risk.
"Merging small local authority pension schemes into mega funds is a welcome initiative for enterprise from the Chancellor as set out in her speech at Mansion House.
The UK public pension funds are currently individually too small to invest in private equity and venture capital and hence into entrepreneurial high growth companies, the tech and life sciences giants of the future. And our pensioners are missing out on the high returns that private equity can achieve for their pension fund investors, typically around 15% per annum - well in excess of other asset classes such as the stock market.
Private equity funds in the UK receive the bulk of their funding from overseas, such as from the large public sector pension funds in USA and Canada whose pensions funds then benefit from private equity's stellar returns; our pensioners are missing out. And our venture capital funds don't have the larger fund size of US VC funds with the result that there is no money to scale up our start-up companies; off they go to Silicon Valley and Boston taking their HQs and their workforce with them.
While the Chancellor has not gone as far as to impose investment into UK companies (it is up to pension fund trustees to determine this) the Chancellor's plans are a good start towards potentially slowing the exodus out of the UK, along with reforms to make our stock market more competitive with US and other overseas markets.
Pensioners must be aware however that while returns have been very good on average historically there is no guarantee on this; private equity and particularly venture capital investing is high risk, returns are not guaranteed and many start-up investments fail. But without taking risks, only mediocre returns are achieved. So the Chancellor's plans are worth a chance."