Britain to tap pensions for infrastructure as Thames Water toils

Britain to tap pensions for infrastructure as Thames Water toils

Britain will attempt to persuade pension schemes to invest billions of pounds into infrastructure and start-ups as part of its post-Brexit reforms. The financial troubles of Thames Water have raised concerns about such investments. On Monday, British Finance Minister Jeremy Hunt will outline the government’s latest plans to unlock cash in pension pots for the benefit of the economy. This move comes as Britain seeks to regain its position in the global finance world following its departure from the EU’s single market.

During his annual speech at the City of London’s Mansion House, Hunt is expected to announce a list of insurers and asset managers who have agreed in principle to increase their investments in alternative assets. The government’s policy focuses on encouraging pension schemes to allocate a portion of their funds to infrastructure, start-ups, and ‘green’ technology. However, independent pensions consultant John Ralfe warns that the financial troubles of Thames Water could embarrass pension schemes that have made significant investments in the company, undermining the government’s push for infrastructure investment.

The finance ministry has not commented on Hunt’s speech, but the pensions industry has already expressed opposition to mandatory investment quotas. Some industry insiders fear that proposed reforms could introduce unnecessary risk to older pension schemes, while others support voluntary targets for defined contribution schemes. These targets may include investing 5% of a pension pot in infrastructure and 5% in venture capital. However, implementing these targets could lead to higher fees due to their complexity. A public consultation on firmer proposals is expected in the autumn.

Critics argue that the government is struggling to develop a coherent policy that will win public support. They believe that implementing such a policy would require primary legislation, which may not be feasible before the next election. With time running out, as Britain is expected to go to the polls next year, the government faces challenges in introducing new legislation.

Some experts suggest that the most effective approach would be to consolidate pension pots in Britain’s fragmented savings industry and adopt a system similar to Australia’s ‘superannuation’ pensions. However, this could take time, as previous attempts to consolidate pension pots have progressed slowly. They argue that larger pension pots would be more willing to allocate funds to riskier asset classes.

Brexit has significantly impacted Britain’s financial services, with Amsterdam surpassing London as the largest share trading center in the region. The decision of UK chip designer ARM to list in New York instead of London has also increased pressure on Britain to enhance the City’s appeal as a global financial hub. The government has already initiated a series of reforms, and Hunt’s speech will mark a new phase that includes the outcome of a report on easing ‘unbundling’ rules inherited from the EU. These rules govern how banks charge customers for research to attract more listings. The EU is already relaxing its own version of these rules.

Additionally, a report on digitalizing stock and bond transactions is expected to call for improvements in communication between companies and investors, as well as advocating for a fully paperless transaction trail. Hunt may also indicate whether Britain intends to follow Wall Street’s lead in reducing the time required to complete a stock trade to increase efficiency and ease burdens on banks.

In conclusion, Britain is seeking to attract pension scheme investments in infrastructure and start-ups as part of its post-Brexit reforms. However, the financial troubles of Thames Water have raised concerns about such investments. The government’s policy aims to encourage pension schemes to allocate funds to alternative assets, but opposition to mandatory investment quotas exists within the pensions industry. Critics argue that the government’s policy lacks coherence and may not be implemented before the next election. Brexit has had a significant impact on Britain’s financial services, and the government is implementing reforms to enhance the City’s appeal as a global financial hub.

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