From Breakingviews - UK growth hinges on more than a new pension giant
The long-term outlook for Britain’s economy is a tale of woe. As with all old-fashioned scary stories, there’s a need for both a villain and a saviour. Some Westminster and City figures think they are one and the same: the country’s 2.2 trillion pound retirement system. Former Prime Minister Tony Blair and ex-Conservative Party leader William Haguethat pension funds’ steady retreat from domestic assets in the past decades caused the lack of investment that is crimping growth.
Blair, Hague and Tory want to redress that by consolidating the 5,130 defined-benefit plans into 100 much larger funds and meshing the 27,000 defined-contribution schemes – plans that are primarily funded by employees – into a small set of “master trusts”. To encourage mergers and boost UK investments, they propose a tax incentive.
The proposals fall short on several grounds. For a start, defined-contribution schemes do invest in UK equities. The industry’s master trusts - schemes where individuals combine their pensions from different employers - allocate 70% to equities for members who are 20 years away from retirement. Overall, some 19% of these funds’ assets are in UK stocks, according to the Pensions Policy Institute.
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