Could pensions be used to fund infrastructure?

Author: 
Caroline Williams, Chief Executive, Norfolk Chamber of Commerce

In the last budget the Chancellor emphasised the Government’s wish to encourage investment from British pension funds in British infrastructure and explained that the Government was working with a dozen of the largest schemes specifically on that.  This work is of immense importance.  There is a wealth of money looking for a better return than currently available in the market or only available in higher yielding equities with attendant risk.  In view of the exceptionally low yields currently available there is a one off opportunity now to match the need to book investment in the UK’s key infrastructure.

Within Lord Heseltine’s’ report ‘No stone unturned’ he estimates that the UK requires over £250 billion of infrastructure investment over the next five years, the vast majority of which will need to be provided by the private sector.

Pension funds are potentially a major source of capital for this investment. The scale of assets held by the UK’s pension funds and other investment schemes is enormous. Combines, public and private sector pension schemes are said to have approximately £2 trillion in assets.

There is news today that Local Government pension schemes may be allowed to invest up to £22.5bn extra in homes, roads and other forms of infrastructure.
Communities Secretary Eric Pickles said there was a "huge investment opportunity" to boost the economy and ease the housing shortage.

Currently a maximum of 15% of the £150bn in local government pension funds can go to infrastructure. The government's consultation will look at increasing this to 30%.This would take the largest possible investment from £22.5bn to £45bn.

The existing rule is supposed to ensure that the funds have a diverse range of assets, so protecting the ultimate value of the pensions.

A key question to be answered is whether investing in infrastructure would actually give the funds the steady, secure returns they need.

A report published last month by the Future Homes Commission, set up by the Royal Institute of British Architects, said a possible 100,000 to 300,000 homes could be built in the UK every year using council pension funds.

Another report, released last year by the Institute for Public Policy Research, predicted a shortfall of 750,000 homes in England by 2025.

There is no doubt that to improve economic growth Norfolk needs major infrastructure investment including new housing so we will be watching this debate with close interest dnd feeding back opinions from our members.

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