The government is to allow defined contribution (DC) schemes to invest in British businesses, under the patient capital initiative.
The announcement was made today (29 October) in the Budget, as HM Treasury presented a document which explores options for pooled investments in patient capital by DC schemes.
With total assets under management expected to exceed £1tn by 2025, DC pension schemes "have a vital role to play in long-term financing for UK growth and innovation," the government said.
If the initiative is adopted on a significant scale, it will provide additional funding for faster-growing start-up companies while also potentially increasing returns for savers.
The Financial Conduct Authority (FCA) will publish two consultation papers on this subject by the end of 2018: the first one is to explore how effectively the UK’s existing fund regime enables investment in patient capital, and the second will be on updating the permitted links framework to allow unit-linked pension funds to invest in an appropriate range of patient capital assets.
The Department for Work and Pensions (DWP) will then launch a consultation in 2019 on the function of the pensions charge cap, to ensure that it does not unduly restrict the use of performance fees within default pension schemes, while maintaining member protections, the government said.
Several of the largest DC pension providers in the UK have committed to work with the British Business Bank to explore options for pooled investment in patient capital, including Aviva, HSBC, L&G, Nest, The People’s Pension, and Tesco Pension Fund.
A patient capital review industry panel, led by Sir Damon Buffini, presented its report last November where it suggested the creation of a patient capital investment vehicle which would enable raising capital "for investment in UK scale up businesses and capital-intensive research and development-based businesses".
A £2.5bn programme was formally launched in June by the British Business Bank.
maria.espadinha@ft.com
