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Will the Chancellor and Prime Minister’s challenge to pension investors unleash UK ‘investment big bang’?

Prime Minister Boris Johnson and Chancellor Rishi Sunak have penned an open letter calling on UK pension schemes to spur a UK ‘investment big bang’.

The duo issued a call with the aim of igniting “an Investment Big Bang” that would “unlock the hundreds of billions of pounds sitting in UK institutional investors”.

Johnson and Sunak argued in their joint letter that British pensioners are at risk of losing out on more prosperous retirements as their allocations towards investment in long-term UK assets is not big enough.

“The United Kingdom’s economy possesses a rich pool of assets ripe for long-term investment and bolstered by a world-leading research sector, commitment to the green technologies of the future, and British entrepreneurial spirit,” the letter read.

“Yet while global investors, including pension funds from Canada and Australia, are benefiting from the opportunities that UK long-term investments afford, UK institutional investors are under-represented in ownership of these assets.”

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Tom Selby, head of retirement policy at AJ Bell, suggested that Johnson and Sunak are banking on retirement investors to deliver an ‘investment big bang’ and power the UK economy back to health.

“Given their long-term focus and scale, defined benefit and automatic enrolment pension schemes might seem ideal candidates to support UK companies. There is also more than a whiff of patriotic fervour in this latest drive to ‘Build Back Better’.”

However, it may not be soo easy for the pair to influence pension investors’ decision making so easily.

“However, just because the PM and Chancellor click their fingers doesn’t mean pension investors will flock to illiquid UK investments in their droves.”

“The reality is that pension scheme trustees have a duty to invest members’ hard-earned retirement pots sensibly, considering various factors including risk appetite, cost and, increasingly, impact on the environment.”

“Institutional investors also need to prioritise diversification when choosing how to put members’ money to work, both in terms of the type of company they invest in and the country in which it resides. Ultimately, the main job of pension schemes is to invest in a way that maximises returns for their members, not in the way the Prime Minister tells them to,” Selby said.

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