Jeremy Hunt is facing criticism for not being bold enough in his approach to unlocking capital from the UK’s £2.5tn pension savings pot. His plan aims to encourage pension funds to invest in UK startups and infrastructure projects. However, rather than criticize his lack of radicalism, we should appreciate the incremental approach taken to avoid potential backlash. The voluntary agreement with major pension providers, such as Aviva and Legal & General, may seem weak, but it focuses on defined contribution (DC) schemes and aims to allocate at least 5% of default weightings to unlisted equities by 2030. While the boast of unlocking £50bn of investment into high-growth companies by the end of the decade may be optimistic, it highlights the potential for more funds to contribute. Compelling fixed percentages would have caused uproar among pension fund trustees, who have a duty to protect their members’ interests. Fixed allocations also pose risks in terms of saturation in infrastructure investments and the difficulty of identifying successful startups. Therefore, a 5% allocation is a pragmatic outcome that benefits younger savers and fosters a shift towards unlisted equities. The removal of barriers against DC funds investing in private assets is a sensible reform. On the defined benefit (DB) side, Hunt’s idea of combining local authority schemes for greater scale and risk-taking potential is promising. However, caution must be exercised to avoid damaging the buyout market that allows companies to offload pension scheme liabilities. Ultimately, the primary goal of DB schemes is to meet pension obligations, even if it means investing in safer assets like gilts and bonds. Overall, Hunt’s plan has gained support within the industry and has the potential to generate additional capital for startups and productive assets. Nevertheless, it’s essential to remember that genuine economic growth requires a comprehensive economic plan.
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