UK pension providers are joining forces to promote investments in infrastructure and AI

Some of the UK’s leading pension providers and insurers have reportedly collaborated to form a group known as “Sterling 20” focused on allocating additional funds into the country’s infrastructure and fast-growing sectors such as AI and fintech.

As their first step, the group plans to join forces with the Office for Investment in the country to secure investment opportunities across various regions, said the UK Treasury on Monday, October 20.

Notably, this announcement was released before a regional investment summit the government will host in Birmingham on Tuesday this week.

Rachel Reeves pushes pension funds to contribute more to the UK economy 

A statement released highlighted that the largest asset manager in the UK, Legal & General Group Plc, and NEST (National Employment Savings Trust), a government-backed workplace pension scheme, have invested billions to establish more affordable housing and improve broadband services in rural areas.

This move has been credited to Chancellor of the Exchequer Rachel Reeves’s earlier efforts to put more pressure on pension funds to increase their contribution to the country’s economy. Reeves viewed these efforts as crucial after observing years of money leaving domestic investments. 

However, although UK pension funds have doubled their investments in private firms the previous year, data released last week by the Association of British Insurers highlights that they still do not meet the levels needed to fulfill a commitment to back private businesses.

In the meantime, the government made public its intention to utilize a “reserve power” to require pension funds to invest in the local economy this year. Individuals have received this plan with mixed reactions. For instance, investment managers have vehemently opposed this plan, arguing that their clients have the right to choose where they place their savings. 

On the other hand, pension providers have raised concerns about costs and performance charges as the main reason they hesitate to make significant investments in private markets.

The members of the newly formed “Sterling 20” group include: Aegon, Aon, Aviva, L&G, LifeSight by WTW, Mercer, M&G, NatWest Cushon, Nest Corporation, NOW Pensions, People’s Partnership, Phoenix Group, Rothesay, Royal London, Smart Pension, SEI, TPT, USS, Pension Insurance Corporation, and Pension Protection Fund. 

UK pension funds strike several significant investment agreements 

Regarding the UK pension funds’ commitment to the government aimed at backing private businesses, eleven firms that signed up to the Mansion House Compact two years ago had increased their investments in private markets to 0.6% of defined-contribution default funds by February, according to the Association of British Insurers. This percentage was higher than the 0.36% recorded last year.

These companies have £1.6 billion exposure to unlisted equities in default funds. This is where pension savers’ money ends up automatically until they decide to invest it elsewhere, compared with £800 million the previous year.

Apart from this commitment, the eleven firms are still striking substantial investment agreements to strengthen the country’s economy. To illustrate this, the companies made a voluntary agreement focused on a 5% allocation towards unlisted equities by 2030. 

Moreover, they reached another crucial agreement this year to strive for the same target for UK-specific private assets.

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