Yahoo Finance Net zero uncertainty is deterring investment in Britain, says pensions industry
Net zero is partly to blame for deterring pension funds from investing in Britain, a leading industry body has warned.
The Pensions and Lifetime Savings Association, which represents some of the biggest pension firms in the country, has published a paper this week outlining why British pension funds do not invest more in British assets.
The PLSA said setting out and implementing “a clear plan for the UK economy, for example regarding the Green Transition” would help recover investor confidence.
It warned political and regulatory uncertainty, as well as low growth, had “reduced the UK’s appeal when measured against global opportunities for investment”.
British gross domestic product was 0.5pc lower in the first quarter of this year compared with pre-pandemic levels. In the US and the Eurozone, GDP was 5.4pc and 2.5pc higher respectively.
While the Government has set out a plan to reduce its greenhouse gas emissions to net zero by 2050, critics have said the plan does not go far enough. The UK’s Climate Change Committee, the Government’s independent advisers on its net zero targets, said there was still a “striking lack of climate preparation” and insufficient “fully credible planning”.
While pension funds insist they need better political certainty to invest more in Britain, the Government is pushing the industry to take more risk with their savers’ money.
Andrew Griffith, a senior Treasury minister, told an industry conference on Tuesday pension funds needed to “reshape” their risk averse culture.
“It’s understandable that with pots of money accumulated over a lifetime, people can be nervous about risking what they have,” he said. “But I want us to be positive about taking risk…and also recognise without changes there is risk in the system – we’re taking risk through risking low returns, poorer pensions and a weaker economy.”
Mr Griffith added the Government wanted to make it easier for pension funds to invest in illiquid assets such as infrastructure. While these investments can produce strong returns, they often come at higher costs.
When asked if the Government would change pension funds’ fiduciary management responsibilities, Mr Griffith said he could not provide a definitive answer.
“The direction of travel is to look and see if we can make sure British pensioners, British long-term savers, in the round have the best possible opportunity for good performance.”
The push to get pensions to invest more in British projects comes as foreign direct investment hit a record low of net negative £233bn in 2021, according to official figures. It means that Britain invested billions more overseas than it attracted to its own economy.
A spokesman for the Government said: “We’re determined to increase investment into the UK’s high growth sectors, ensuring our most cutting-edge businesses can access the finance they need to scale up and list in the UK.
“Unlocking the billions of pounds held in pension schemes across the country is key to channelling capital into productive assets in a way that benefits both businesses and pension holders – powering economic growth and increasing the retirement income of millions of savers”.
