The pension megafunds

[AlderBuckthorn]

Should we be worried about the risks of over consolidation or optimistic about the potential for growth?

www.reuters.com/world/uk/britain-eyes-pension-megafunds-super-charge-economy-2024-11-13/

They have no such duty.

These are DB pension schemes. Investment returns do not affect the pensions of the members.

Trustees of a DB pension scheme do have a duty to ensure that members get the pensions they have been promised, when they fall due. But how it is invested and in what and how much risk to take is up to them.

@snowlaser the proposals include consolidating DC funds too.

Just as long as everyone remembers to treat the fund as holding our deferred salary.
How are existing Funds that invest in UK equities and infrastructure doing. Were any holding Carillion when they went bust? I think many are only making 2%, so not making a profit above inflation.

The idea of it holding your deferred salary is only really applicable to a DB pension (ie now only really available in the public sector), which gives you a guaranteed and inflating income for life (as a salary would do if you were employed).

DC pensions don’t do this. It’s a pot of money and the investment, inflation and longevity risk is on the individual, no one else. You have the option to move out of your provider’s default fund if you wish to, they do have a duty to provide member returns but they don’t have any specific duty to provide returns that are tied to any specific level or/of salary (as DB funds do). It’s why they’re more accurately described as long-term savings than as pensions.

True but in a DC scheme individual scheme members can choose their own investments (albeit usually from a limited range). There is still no fiduciary duty on the scheme to maximise returns as per the other poster. What would that even mean - invest in bitcoin and lottery tickets?! Investment is about BALANCING risk and returns, not maximising returns.

I agree it is about balancing them, but to some extent that means maximising returns to the point at which risks are not compromised. It’s nuanced imho… neither of you are wrong.

She Can do with DB pensions whatever she wants as those will be essentially underwritten by the taxpayer including those who do not have access to these gold plated pensions.
investing in illiquid assets is only possible for DC pensions that will not be accessed for decades which will exclude most DC schemes of significant value as the holder is likely to be older.
We remember what happened to star manager Neil Woodford when he invested in unlisted companies.

Good point on Woodford. However, what you describe isn’t really how DC funds work, they’re still invested as pooled funds rather than individual pots. A scheme holds multiple member accounts, investments take place at the scheme level not the member level. The difference is that the risk isn’t pooled (as it is in DB). This means that asset allocation has a greater impact than liquidity when it comes to returns in question.

“Accessing” you pension is a somewhat problematic term… people just look at the age at which you start drawing down but truth is you could be drawing down (and therefore invested) for 2-3 decades after you leave work.

Just been confirmed that there will no requirement to invest in the UK and it is local govt schemes only.

So very limited change.

PF 's used to invest 20% into the UK, now its less than 5%, pensions subsidised via tax reliefs ie us tax payers, to the tune of 70 billion per year, 95% of which goes into other countries economies.

Trading American/foreign shares does not directly benefit these companies unless you buy them when they are first issued.

And thank goodness there is no requirement to invest in the UK. Or the returns would be dismal, and, following our economically illiterate kneecapping of SMEs, growth will only be even lower in the UK. Indeed, it was downgraded almost immediately after the budget. The projected interest cuts were also dialled back, and mortgage rates have started to increase. Along with unemployment. I’m glad very very little of my pension is invested in the UK.

The tax relief is a quid pr quo for the government not having to support us in older age… This conflating two entirely different areas, economic growth and pensions, and implying you can’t have one without meddling with the other is a nonsense. For many years we had growth without kiboshing people’s long term pension planning.

We've not had growth for over a decade & if the UK is so terrible, how come we have so much foreign ownership in the UK?
Why does a Canadian fund see adv in buying 3 UK airports but a UK fund does not?

Pension funds are not all investing in foreign equities, in fact you'd be lucky to find more than 40% of a PF is in equities, so the rest could very well be assisting overseas economies.

Private equity invests in the UK as we have fewer rules around restructuring, asset stripping etc.
Foreign pension funds or asset managers are not investing in UK PLC equity.

It is a fact that global equities, and in particular US equities have out performed U.K. equities by some margin.

And I don’t know where you get your 40% equities on PF from…most default funds in the core investing periods are around 60% equities. And are in gobal equities. I think the overall average is less than 10% invested in the U.K. I am at 2.5%. Many self select a higher equity % - I have been 80% in equities, underweight in U.K., for the best part of 20 years and done very well as a result.

Old fashioned thinking was that as you neared retirement you switched from equities to bonds, and perhaps that’s where your 40% comes from. But, as an investment strategy for a drawdown pension over what in my case could be 40 years that’s fatally flawed - the drawdown period will be longer than the investing period so I intend to continue to be heavily equities weighted for at least the next 2 decades to benefit from long term growth. And I don’t see that coming from the U.K.

As for foreign investment in UK infrastructure that’s usually for the income / dividend stream, providing predictable cashflow. Quasi bonds you like, with a higher return than government bonds. And income should form part of anyone’s investment strategy. But being overweight in that type investment will hold back your overall investment growth and therefore long term income potential.

Yes they have but thats a fairly recent thing & whilst its true DC schemes in the earlier years have 60% plus equities, thats not true of funds when you re nearer or in retirement... and most people do not actively manage their funds either.

My point is that if foreign funds can see potential in investing in the UKs infrastructure, why not a UK one?

Which seems to be the whole point in these reforms, which appear to be primarily for council run funds.

That's a really good point.

Although I don't know why it couldn't be done by keeping the funds separate but setting up shared investment vehicles? I guess that ends up with more layers or management costs though

I don't mind them exploring these ideas but I think the party should get it's feet under the table a bit more before making any bold moves

My first thought reading this thread...
My pension in UK infrastructure? <shudder> My industry is IT. So I have more of a feel for those type of projects. I cannot think of a SINGLE govt project that has run to time or budget. Think of HMRC software, NHS stuff. And the mentions of HS2 are bang on.

Anyway, back to the wider topic 🤣

Why does a Canadian fund see adv in buying 3 UK airports but a UK fund does not?
It would be a bit embarrassing for Starmer et al to bang on about COP and reducing emissions whilst at the same time encouraging the investment of Civil Servants' funds in air travel.

I dunno. Maybe some cool heads, with long-term (i.e. beyond the next election) goals and sound control of money might achieve the timetables / budgets that elude Governments.

Govt IT projects don't fall under the title "infrastructure"

Think Water, Energy, Road, Rail, Ports and even Airports....

My point is that if foreign funds can see potential in investing in the UKs infrastructure, why not a UK one?

The UK makes it attractive for private equity to invest in key infrastructure because it allows restructuring of debt and asset stripping. Other countries don’t..

The idea that non-domestic funds are investing in UK PLC equities is really not as prevalent as it sounds here.

May all be correct but the fact remains is that a Canadian "mega" fund has bought 3 UK airports.

I would prefer that a UK one did that... its also quite obvious that 86 regional funds would perform better if they were consolidated into 5 or 6 funds..

I also do not believe the idea behind this de regulation is about UK PF buying up UK equities.

We do not have the management expertise to take on these bigger projects. That is why HS2, Thames Water and others get bought up.

Our strength is in quick trading.