British pension funds enjoy significant tax breaks, worth around £50bn a year, as employee contributions are treated tax-free. But Louis Taylor, chief executive of the British Business Bank, warned that the government could claw back those benefits if the funds did not channel more capital into domestic projects.
Taylor said the move could increase support for UK infrastructure and start-ups, while not directly burdening taxpayers.
British pension funds currently invest in a much smaller proportion of risky but growth-oriented assets than, for example, their Canadian or Australian counterparts. Canadian pension funds, for example, invest 15 times more in private equity and start-ups than their British counterparts, resulting in better returns for members.
In the UK, pension funds allocate just 4.4% to UK equities, compared to 50% at the turn of the millennium.
Chancellor of the Exchequer Rachel Reeves has promised new pension fund consolidation laws to allow investment in bigger, riskier projects.
According to Reeves, this could release up to 80 billion pounds of capital for the domestic economy, but he emphasized that the government is not currently planning to introduce mandatory investment quotas.
However, according to the head of the British Business Bank, easing investment rules would be key to accelerating British economic growth.
The government aims for pension funds to invest at least 5% in projects within the UK. Taylor admitted that changes can happen slowly and gradually, but emphasized that supporting domestic infrastructure and start-ups can increase the rate of economic growth in the long term.
The cover image is an illustration. Cover image source: Portfolio
Source: www.portfolio.hu
