From the Director 

So, a big sigh of relief for the Government and financial services industry as the Pension Schemes Bill finally navigated its way through the interminable ping-pong between the House of Commons and the House of Lords. 

Or maybe not...The reforms are about to commence a potentially more treacherous journey into the regulatory briar patch. For NCC, the Bill's reforms are an admirable step in the right direction, but if the Government really want the pensions system to be the engine of UK growth that it should be, the job is only half-done. 

The debate over the now watered-down mandation clause has unfortunately drawn attention away from the potentially game-changing and long overdue reforms to the system contained in the Bill. Harnessed properly the considerable growth potential that Superfunds can bring to DB consolidation and the return-seeking potential of the Value for Money framework could be far more significant that a mandation clause that will, in all probability, never be used.

NCC has never favoured mandation; we see incentivisation as more powerful and politically safer. A reserve power that targets asset allocation risks freezing one part of the system and letting unintended consequences fall where they may. Whether the regulation will incorporate the right incentivisation remains to be seen.

Sir Nigel Wilson's article in The Times this month served as a timely reminder that, despite the UK having £6tn of investment capital, we are staggeringly poor at allocating it to areas that benefit the UK economy. The effects of this we are already seeing extend into national security...

Military drone manufacturer, Skycutter, recently announced it is considering relocating to the US to ensure its future as a viable business. Following multiple US buyouts in the UK technology and AI sector, Skycutter is just the latest fledgling firm that has struggled to scale in the UK. With our institutional capital flooding to the US-tech dominated MSCI Global and similar indexes, it is hardly surprising that our ability to maintain national control of key infrastructure is hampered. 

It we want to retain innovative firms in the UK we need to rebalance the flow of money to the US that results from our current 'index-mindset'. The Pension Schemes Bill may have failed to do this, but the right incentivisation could yet make a difference.

Ashok Gupta

Director of New Capital Consensus

Pension Schemes Bill: The Government's significant reforms to pensions and the direction of the UK investment system has seen concessions made on the mandation debate at the last minute and saw the Bill pass through Parliament after considerable back-and-forth. The Act has seen the original mandation reserve powers scaled back and limited, forms a Value-for-Money framework, enables the automatic consolidation of small pension pots, scaling of DC pension funds, consolidation of LGPS, and starts the firing gun on DB superfunds, all with the ability to enable more broad investment flexibility for these entities including into more illiquid assets. More thoughts can be found further down in the "Westminster Update" section of the newsletter.                          

Capital Allocation: The Times recently highlighted former Legal & General CEO Sir Nigel Wilson's concern with the £6trn sized pool of UK investment capital not being channelled into long-term growth assets. Arguing that the problem is not from "capital availability" but in fact "capital allocation", Wilson calls for a rethink of this capital being overexposed to gilts and cash, especially when some of this could be channelled into domestic private growth assets. He argues this is especially critical for scaling UK technology and life sciences companies and ensuring they can remain in the UK and even become listed here.

Wilson's points echo New Capital Consensus' key findings that despite the UK having the second largest pool of investment capital in the OECD and an efficient system of moving money from A to B, there is a fundamental misdirection of capital occurring within our investment system. With potential long-term, 'patient capital' necessary for investment in growth businesses, infrastructure, housing and the just transition pooling in unproductive areas that provide comfort on the balance sheet but rob the UK's savers of better outcomes through returns and investment into the areas they retire in. NCC's Effective Investment report analyses the capital allocation issue in more detail, which is available for you to read here.

Innovation Drain: Last month, British drone company Skycutter raised the alarm on staying domiciled in the UK and potentially relocating to the US. They would join a growing list of innovators such as DeepMind, Alphawave and Oxford Ionics who have either sought growth-capital elsewhere or have been bought out by US tech firms - many of which are capitalised by UK institutional investment flooding towards Mag-7 dominated indexes. 

When cutting-edge defence innovators move abroad, the importance of rebalancing domestic investment flows takes on a new urgency.                                                     

This month, Ben Rich, Chief Executive of Radix Big Tent, NCC's partner, wrote about the unholy alliance of short-termism between politics and finance. 

With natural 'patient capital' ready to deploy in the form of the trillions in the pensions system, we're pressing for a re-examination of the liquidity requirements and accounting standards that chop long-term risk into a series of short-term risks. 

You can read more of Ben's thoughts here.

Westminster Update - a roundup of our work in Parliament

• Pension Schemes Bill becomes Act: The Pension Schemes Act is a significant piece of legislation that NCC has been closely monitoring throughout its journey in Parliament. NCC welcomes the traction for these reforms that are vital to redesigning the investment system to improve outcomes for savers and society from this Act. But this is only half the job. The ongoing regulatory and industry incentives to build on this legislation must now be effective and done correctly to encourage the UK's £6tn of investment capital into more productive long-term assets and sustainable growth.                                                                                                                                                                        

• Community right to buy and new direction for mayors: another piece of legislation that may have gone missed as the focus on the Pensions Schemes Bill overshadowed much of the attention from the financial services sector on Parliament last week, is the English Devolution and Community Empowerment Act. A major campaign plank of Labour's sister party, the Co-operative Party, the Act now allows local communities in England to get first right of refusal on the purchase of local assets being put up for sale in a 12-month window. This covers a variety of physical property assets deemed valued to a local community; from shops, pubs and libraries to even football pitches. The Act also mandates regional mayoral "strategic authorities" to develop local growth plans and grants them more powers over e.g. planning policy. It also amends various local government functions.                                                                                                                                                                                            

• Ad hoc meetings in Parliament: NCC has continued to also have a number of ad hoc meetings with members of parliament and peers to share our insights and facilitate dialogue on investment system reform. NCC recently attended Lord Davies of Brixton's pensions drop-in session to discuss the Pension Schemes Bill with peers, and NCC continues to engage with a wide range of parliamentarians on the relevant policy issues. We wish to offer our thanks to those who have reached out.                                                                                                                                           

• Get in touch: If you are a parliamentarian or staffer and would like to find out more information or arrange a meeting, please email Francis Bell: francis@newcapitalconsensus.org

About New Capital Consensus                                                                                                     

New Capital Consensus (NCC) is a coalition of independent and apolitical organisations, including Chatham House, Radix Big Tent, FinSTIC (Financial Systems Thinking Innovation Centre), and the Leeds University Business School, exploring how the investment system can be reformed to produce better outcomes for savers and society.