Rachel
Reeves’ pension plan could damage the north, says ex-minister
Lord Jim
O’Neill says small businesses could lose out from merger of local government
schemes to create large fund
Phillip
Inman
Sun 18 Aug
2024 07.00 BST
Government
plans to create one of the largest pension schemes in the world from a merger
of 87 local authority retirement funds could undermine investment in
groundbreaking businesses across the north of England, according to former
Treasury adviser Lord Jim O’Neill.
Innovative
startup businesses, many of them spun out of universities in Manchester, Leeds
and Sheffield, could lose out if the Treasury creates a big fund interested
only in backing large companies, he said.
O’Neill, who
is chair of the £312m Northern Gritstone investment fund, said there was a
danger the policy could backfire if the merger fails to preserve the local
knowledge and commitment to backing local businesses found in the current
system.
“From our
experience at Gritstone, it’s a myth that local authority pension fund managers
don’t invest in British startup businesses because they do. It is the big
pension schemes that are nervous about investing in the kinds of businesses
that we support,” he said.
Northern
Gritstone backs more than 20 businesses, including the chip maker Pragmatic
Semiconductor, which was started by Cambridge University academics and makes
“flexible chips” for tracking goods in a factory near Sedgefield in County
Durham.
Individual
local authority pension schemes provide more than 50% of Gritstone’s funds.
Last month,
Rachel Reeves set up a taskforce of industry executives and ministers from the
Treasury and Department for Work and Pensions to shake up the industry –
cutting costs and improving investment options – to allow retirement scheme
managers to boost pension pots by up to £11,000.
One aim of
the taskforce is to pave the way for a merger of the 87 individual pension
schemes in the Local Government Pension Scheme (LGPS) covering England and
Wales. The scheme, which ranks as the seventh largest pension fund in the
world, managing £360bn worth of assets, spends £2bn on fees, which could be
reduced following a formal merger.
Reeves, who
met pension fund managers in Toronto this month to discuss the creation of a
“Canadian-style” model in the UK that fosters huge retirement funds investing
in UK businesses and infrastructure, said that if local authorities failed to
bring about a merger voluntarily, she would legislate next year to abolish
them.
O’Neill, a
former boss of Goldman Sachs Asset Management who served as a Treasury minister
in David Cameron and Theresa May’s governments, was among business figures who
helped Labour develop its policies before the election.
“If the new
fund mimics other large pension schemes, it won’t invest in things like
Gritstone. If I was running the merged fund, I wouldn’t. The incentive wouldn’t
be there,” he said.
“On the
other hand, the fund managers at the Manchester pension scheme felt they had a
moral responsibility to support local businesses” , as well as wanting a good
long-term return for pension savers,” he said.
Duncan
Johnson, the chief executive of Northern Gritstone, said a partial merger of
local authority funds into the £64bn Border to Coast scheme, which invests on
behalf of a range of local authority funds, had shown how local knowledge could
be lost.
“The Border
to Coast scheme has no place-based investment policy. It is just about making a
return on the investment,” he said.
Johnson also
warned the government to support universities after several were found to have
large funding shortfalls.
He said
university spin-off businesses were crucial to support the UK’s drive to be at
the forefront of technology and innovation. Without government support,
institutions will fall down the world rankings and lose expert academics behind
the next generation of “investable businesses”.
A government
spokesperson said planned reforms to UK pensions included a merger of local
government schemes so the new entity can “invest in a wider range of UK assets
while cutting waste. And we will consider legislating to mandate pooling if
insufficient progress is made by March.”
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