U.K. Pension Reform: Who’s Up For Managing a $1 Trillion Pension Fund?


A proposal to mash together all of the U.K.’s corporate pension plans into a handful of mega-funds with more than 2 trillion pounds ($2.8 trillion) of assets promises to revitalize the London stock market, give retirees more security and boost the British economy all in one go. This ingenious idea has some logic, and a wrinkle.

Investment banking boutique Ondra Partners is suggesting that the U.K.’s defined-benefit corporate pension plans — numbering more than 5,000 — merge into three national vehicles. The sheer scale of these platforms would facilitate investment strategies that deliver better returns, it says, helping solve the problem that a majority of U.K. retirement programs have liabilities exceeding their assets.

In particular, these giant funds would have the firepower to write big checks for long-term infrastructure projects, a good match for pension obligations. They’d be better placed to invest in early-stage tech firms too.

The companies injecting their pension plans into the new vehicles would get something close to a clean break. They would have to make annual payments covering newly accrued retirement promises, and honor existing commitments to reduce deficits via top-ups over the next few years. But the liability for paying retirement incomes would be transferred over.

The mega-funds could invest the assets more adventurously. If they upped the weighting of domestic stocks, that could reverse pension plans’ wholesale withdrawal from their home equity market. Between 1998 and 2018, Britain’s pension funds and insurers went from owning just under half of U.K. stocks to less than 10%, according to data from the U.K. national statistics office. Changes to the accounting treatment of pension liabilities prompted a rotation into corporate and government debt.



Read More: U.K. Pension Reform: Who’s Up For Managing a $1 Trillion Pension Fund?

2021-06-16 06:15:00

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