In tomorrow’s autumn Budget, Chancellor George Osborne is expected to announce a number of measures that will include a deal whereby the National Association of Pension Funds (NAPF) will invest in UK infrastructure projects. He wants to encourage pension schemes to put as much as £20bn into a National Infrastructure Plan, specifically for as many as 40 projects such as the upkeep on existing roads, new tolls and improved transport links.
Construction projects in the UK are an umbrella term for delays, strikes, over-spending and more delays – although job creation is one thing thrown at some of the projects that could actually be a benefit this time round.So initially, the thought of pension schemes spending their money on this type of deal should have filled pension scheme members with dread. And its till should unless there are a number of specific controls put in place – the need for long-term investment on one hand and sustainable, long-term returns on the other is a virtuous arrangement and needs to be handled properly.
Pension schemes and their members (i.e. those individuals who fund them) must receive a decent yield over and above one they could get for the same level of risk elsewhere and I am not sure this is the right way to do that.
It looks like the deal is being pushed through by a government with its own emphasis on reducing a phenomenal deficit rather than being driven by an association with its members best interests at heart. And this from a government that has recently had to fold its last attempt at encouraging outside investment into, in this case, a private equity fund, aka the UK Innovation Fund.
Two years ago it targeted £1bn to invest in small and medium-sized businesses but collapsed two weeks ago with less than £5m invested by third-parties alongside £150m from the government and £175m from Hermes and a subsidiary of the European Investment Bank.
The Chairman of China’s sovereign wealth fund has said it is interested in investing in Western infrastructure so let’s hope it does as an NAPF/UK Government plan will hold together much better with China in toe than one or the other going it alone.
