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‘Cultural shift’ needed to unlock UK investment from life insurers
This article was originally published in the Financial Times.
The UK’s pool of investable assets grew by £457bn over the past year to reach £6.1tn, according to research from New Capital Consensus and Leeds University Business School.
The report, From Scale to Impact: A Blueprint for the Future DC Pensions Market, found the increase was concentrated primarily on the balance sheets of life insurers, Isas, DC master trusts and private DC pensions.
It argued that greater investment in private markets, supported by a more consolidated pensions market, could improve long-term outcomes for defined contribution savers.
Lead researcher, Dr Sania Wadud, said: “These updated figures sharpen our analysis of the investment-system as it reveals critical shifts in where assets are invested and by whom.”
It said there was a shift away from DB pension schemes to life insurers, a sector which represented £215bn worth of capital growth.
Meanwhile, private DC individual pension pots were up by £72bn.
The think-tank said this represents a “structural challenge” for the government in attempting to unlock domestic investment.
Wadud added: “Life insurers especially now play an ever more important role in deciding where UK institutional money is invested, making the constraints of Solvency UK and mark-to-market accounting practices a limiting factor to effective long-term investment outcomes.
“From the rotation to DC that this analysis has uncovered, it is also clear we need to ensure savers’ money is invested appropriately in primary investment in the UK and beyond rather than mechanically flowing into big US-tech stocks, like, the SpaceX IPO, or sitting in low-cost, low-return areas because of constraints on how it can be allocated.”
Ashok Gupta, director of the investment think-tank, said the UK is “not suffering from a lack of capital” but constraints placed on the system is failing to allocate to productive places.
He said: “Repatriating some of this pool of capital, especially from the US, and incentivising long-term, illiquid investment in fledgling industry, sustainable energy and housing would solve a lot of the government’s headaches — and a move to rebalance the UK’s capital to work for country of the savers whose money it is would be a bold step for a new Prime Minister. ”
Gupta claimed that life insurers were currently not able to invest in what he called “an innovative efficient UK business” due to regulatory requirements which prevent long-term, illiquid investment.
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