UK’s pension wealth is being ‘squandered’, Phoenix boss warns
The UK’s pension wealth is being “squandered” due to the fragmentation of the market and a lack of risk taking among money managers, the investment chief of Phoenix has warned.
Writing in City PM today, Mike Eakins, chief investment officer of the FTSE 100 pensions giant, said the UK was an “outlier” compared to similar countries and its pension cash was being put to inefficient use across thousands of small investment vehicles.
“We have one of the highest levels of investable pension wealth, but this advantage is squandered by having it split up between thousands of arrangements,” he said. “The diffuse nature of the market largely exists for historic reasons and the industry should not be afraid of change.”
The warning comes amid a drive from government and the City to funnel pension cash into more productive assets, after a flight towards the bond markets in the past 20 years.
While the UK has some £5trillion in pension cash under management, accounting tweaks around the turn of the millennium triggered an exodus from equity investment in favour of more predictable assets.
The Chancellor has made unleashing investment from the UK’s pension sector a key pillar of her economic agenda, outlining plans to tap a £160bn funding surplus in ‘final salary’ schemes and consolidate the UK’s sprawling local government pension system.
Currently, 86 different local government pension schemes manage assets between £300m and £30bn, with local government officials and councillors managing each fund.
Reeves has held up Canada and Australia as examples, where pension assets are managed in a small number of multi-billion dollar vehicles.
Eakins said merging the sector into bigger combined funds would allow them to “function in a more sophisticated manner”, compete with “the very biggest investors for growth opportunities and us[e] their scale to extract the best terms”.
A “conservative” approach to investment decisions meant that funds were also “missing out on higher returns available in private markets”, he said, adding that a more “dynamic investment approach” would boost savers’ pension pots and “unlock substantial capital for domestic projects”.
Phoenix was among several pension money managers to back a pledge in 2023 to channel five per cent of their assets into growth assets by 2030.
It launched a joint venture with Schroders last year designed to inject cash into the private markets. Similar projects have been rolled out by Aviva and L&G.