Chancellor Philip Hammond is expected to unveil plans to use billions of pounds of defined contribution pension money to fund fast-growing British technology companies.
According to a Sky News report, Hammond will announce a feasibility study into the use of DC pots to fund patient capital investment opportunities alongside the budget on Monday, 29 October.
The initiative, which will sit alongside the government’s £2.5bn patient capital programme announced in June, will help bolster returns for pension savers while providing additional funding for technology companies with high-growth potential.
Despite this, some in the industry may be wary about the increased risks in places on schemes, while the feasibility study set to examine whether patient capital investment should be a default option, mandatory or for a chunk of each scheme.
The study, likely to be led by the industry, will include representatives from Aviva, HSBC, Legal & General and Tesco, Sky News has reported.
Investments will focus on later-stage capital growth, rather than companies in the early stages.
Commenting on the report, Aegon pensions director Steven Cameron said that while it may well be worth considering, schemes should still consider a diversified approach and have no mandatory requirement to invest.
“People do change jobs and transfer their pensions, meaning schemes need to ensure they also have sufficient liquidity. Patient capital investments may not be priced daily which creates a challenge for schemes in which members can buy and sell units in investment funds daily,” he said.
“The key aim of pension schemes must remain providing an income in retirement to their members, not as a compulsory flow of investments to finance parts of our economy.”
According to Sky’s sources, the working group will look to deliver a cross-industry structure, suggesting the Treasury is looking to implement the idea quickly.
Cameron also suggested that individuals who invest in patient capital could have their pensions lifetime allowance waived, a move that he said would introduce complexity and bias into the system.
“Most people approaching their lifetime allowance will be closer to retirement, meaning liquidity is particularly key if they intend to use their pension to generate an income.
"Furthermore, investment diversification is important for any pension investor, and forcing any pension investments above the lifetime allowance into patient capital could lead to too much concentration in a single asset class.”
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