Jeremy Hunt piles pressure on pension funds to back British firms in fresh City shake-up

Pension funds will be forced to reveal how much of their cash is invested in UK companies and poorly performing schemes will be blocked from taking on new business, in a bid to get retirement money flowing into the economy, Jeremy Hunt has announced,

In an announcement today ahead of the budget next week, Chancellor Jeremy Hunt said pension money managers would be made to publicly disclose how much they invest in UK businesses compared to how much of their cash is flowing overseas. 

Schemes delivering lacklustre returns for savers will also be blocked from taking on new business from employers as part of a push to consolidate the UK’s sprawling pension market.

The fresh plans follow a package of measures announced by Hunt at Mansion House last summer designed to get retirement money invested into start-ups, triggered by fears that foreign pension funds are investing more in UK firms than domestic funds.

“British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses,” Hunt said in a statement today. “These requirements will help focus minds on how to improve overall returns and outcomes for savers.”

Under the plans, defined contributions pension funds will have to disclose their levels of investment in British businesses as well as costs and net investment returns by 2027. 

Funds will also be required to publicly compare their performance data against similar schemes, including at least two schemes managing at least £10bn in assets, Hunt said. 

The benchmarking of schemes signals a push from the government to consolidate more pension money in bigger funds, akin to Canadian and Australian superannuation funds. Regulators will also be given powers to intervene in those underperforming the market, the government said.

“Schemes performing poorly for savers won’t be allowed to take on new business from employers, with The Pensions Regulator (TPR) and Financial Conduct Authority (FCA) having a full range of intervention powers,” the Treasury said in its announcement.

City figures have been leading calls for greater investment from homegrown start-ups amid fears over the health of London’s public markets and a drop-off in domestic equity investment from pension funds in recent years.

Accounting rule changes in 2000 required firms to disclose the deficits of their pension schemes as financial liabilities in their accounts, triggering a major move toward safer bond holdings.

Now just four per cent of the UK stock market is held by pension funds, down from 39 per cent in 2000, according to a new report from think tank New Financial.

Hunt’s fresh reforms were welcomed by City grandees today, with London Stock Exchange chief Julia Hogget saying pension holders “should know how much is being invested in equities in their home market.”

“Investing in UK companies ultimately benefits those companies and the returns they are delivering, which supports the economy and the country in which pension holders live, to everyone’s benefit and in everyone’s interest,” she added. 

James Ashton, Quoted Companies Alliance chief executive, said there was “huge upside to aligning the UK’s financial assets with innovative homegrown ventures that could be tomorrow’s world beaters”.