Synopsis: Attracting more DC investment in productive finance and the energy transition

This blog is a synopsis of the original article “How to attract more DC investment in productive finance and
the energy transition“ authored by Professional Trustee Paul Tinslay, as featured in Net Zero Investor.

UK Pension Fund Investment Concerns

Former Chancellor of the Exchequer, Lord Hammond of Runnymede, has expressed concern over the inadequate investment by UK pension funds in domestic markets, questioning the effectiveness of the voluntary approach in the government’s Mansion House reforms. These reforms aim to enhance investment in productive finance through initiatives like Long-term Investment for Technology and Science (LIFTS) and the Growth Fund within the British Business Bank. 

The government is also looking into strengthening the UK’s venture capital industry, introducing a Venture Capital Fellowship scheme and committing £20 million to support ‘spin-out’ companies from universities, with an overall goal of generating £10 billion annually for the economy. Notably, Australian manager IFM has already pledged A$10 billion to illiquid investments, signalling confidence in the UK. 

Despite government efforts to improve the investment climate, concerns persist about the voluntary nature of participation, prompting the Financial Conduct Authority (FCA) to review the UK listing regime to make it more competitive, effective, and attractive for investors.  

Leveraging UK Pension Funds for Growth

A call is made to leverage pension funds for supporting the UK’s growth, aligning with initiatives like the Taskforce for Nature-related Financial Disclosures (TNFD), ESG considerations, and the Green Taxonomy initiative. For Defined Contribution (DC) investors, the revision of the Value for Member/Money (VfM) framework is highlighted, emphasising a broader focus beyond low charges. 

Challenges in the DC asset direction, especially in contract-based pensions lacking trustee involvement. The need for consolidation and resolving legacy issues like with-profits is emphasised.  

The Department for Work and Pensions (DWP) is reviewing the master trust authorisation and supervisory regime, shifting focus to investment governance and value, urging master trusts to justify investment decisions. 

Concerns arise regarding the government’s reluctance to direct tax relief for pension contributions. One proposal suggests Auto-Investment alongside Auto-Enrolment, where tax relief is invested within defined parameters unless members opt-out, aiming to encourage domestic market investment and address reported disengagement by UK pension funds. 

Looking for the full article?

Read Paul Tinslay’s full Net Zero Investor article “How to attract more DC investment in productive finance and the energy transition” here.