Over Half UK Pension Schemes Support New Tax Incentives To ‘Galvanise’ Pension Investment

UK pension funds currently invest more than £1tn in the UK through a blend of UK shares, corporate bonds, Government debt and other asset classes. However, in recent years, policymakers have been considering ways to help encourage pension funds to play a greater role in providing additional capital to support economic growth in the UK, particularly through increased direct investment in infrastructure, private markets and venture capital.

Labour’s ‘landmark’ pension review

The poll findings follow the announcement from Chancellor Rachel Reeves in July of a two-stage pension review that promises to “boost growth and make every part of Britain better off.” Details of the first phase of the pension review were announced on 16 August and will initially focus on four key policy areas:

• Driving scale and consolidation of defined contribution (DC) workplace schemes
• Tackling fragmentation and inefficiency in the Local Government Pension Scheme (LGPS) through consolidation and improved governance
• Examining the structure of the pensions ecosystem and achieving a greater focus on value (rather than cost) to deliver better outcomes for future pensioners
• Encouraging further pension investment into UK assets to boost growth across the country.

The findings of the initial phase of the review are expected to be reported later this year, ahead of the introduction of the Pension Schemes Bill. The second phase of the review will look at how to improve retirement security. 

What incentives could the Government consider?

Back in May, shortly after Labour won the General Election, the Pensions and Lifetime Savings Association (PLSA) published a research paper titled: ‘Pension Priorities for the first 100 days of a New Government.’ Within the paper, it suggested the incoming Government should consider encouraging pension investment in the UK economy in several ways, including using 
October’s Budget to ‘introduce fiscal incentives that make investing in UK growth more attractive than competing assets,’ such as tax-free dividends on investments in UK companies made by pension funds. PLSA also suggested additional tax incentives, like the LIFTS (Long-term Investment for Technology and Science) initiative, in UK start-ups and companies requiring late-stage growth capital. 

Other initiatives could include working with the pension industry to identify a pipeline of investible opportunities that will both support UK growth and achieve the right risk-return and cost characteristics that pension funds require.