Hammond clears path for pension billions to back UK 'scale-ups'

Philip Hammond will next week clear a path for billions of pounds of savers' retirement pots to back high-growth British technology companies.

Sky News has learnt that the Treasury plans to unveil a feasibility ‎study into the use of defined contribution (DC) pensions to fund so-called patient capital investment opportunities.

The initiative, which will build on a £2.5bn project to support British companies with high growth potential, is expected to be announced alongside the Chancellor's Budget on Monday.

Sources said that the feasibility study would explore options for pooled investments in patient capital by DC schemes.

Such a move, if it were to be adopted on a significant scale, would have the dual virtue of providing additional funding for faster-growing 'scale-up' companies, and potentially bolstering returns for savers' money after a decade of ultra-low interest rates.

However, it might also draw a wary response from those who believe it might expose pension funds to riskier investments.

Insiders believe the new study will examine whether patient capital investment should become a default option, or mandatory, for a chunk of every DC scheme.

The new working group, which will be led by industry alongside the British Business Bank, is likely to include representatives from Aviva (Other OTC: AIVAF - news) , HSBC, Legal & General (LSE: LGEN.L - news) and Tesco (Frankfurt: 852647 - news) , according to people close to the Treasury.

Nest, the workplace pension scheme set up by the Government, and The People's Pension, a similarly structured organisation, will also be involved.

Further members are expected to be added during the coming months.

Sources said the working group would be asked to design structures that could be implemented across the pensions industry, suggesting that the Treasury is keen to progress the idea quickly.

The focus will be on later-stage venture capital and growth capital funding, rather than very early-stage companies, they added.

Britain is recognised as a global leader in some areas of artificial intelligence, battery technology and scientific research, but companies in these areas often have trouble securing funding to bridge the gap between their initial ideas and the commercialisation which enables them to rapidly expand.

Financiers have for years sought greater access for those companies to pension fund money in order to help unlock that financing gap.

The UK's DC pensions market accounts for hundreds of billions of pounds in savers' money, although‎ its precise size is the subject of constant debate.

Mr Hammond has made ‎patient capital an important element of previous set-piece announcements, with a £2.5bn programme formally launched in June.

Draper Esprit (Irish: 30782172.IR - news) , the listed venture capital firm, was the first recipient of evergreen funding from British Patient Capital, which invested £30m into it.

The Chancellor said at the time: "The UK is home to some of the world's most innovative companies and I want to make sure that they stay at the forefront of the tech revolution.

"British Patient Capital will provide an extra £2.5bn for these cutting-edge businesses, ensuring Britain remains one of the best places to start and grow a company."

‎The Treasury said it would not comment on any aspect of the Budget ahead of the Chancellor's speech on Monday.