UK Government Eyes Pension Funds for Long-Term Infrastructure Projects



Posted on: 1st November 2016

Up and down the United Kingdom, pension trusts and providers are constantly seeking new and improved investment opportunities. Left to its own devices, the money would stagnate and bring little to nothing by way or returns. However, it would be looked after safely. At the other end of the scale, risky investments combine the possibility of healthy returns with the elevated risks. The ideal scenario, of course, is the best of all worlds – reliable returns with minimal risks.

According to a report published late on Sunday by The Telegraph, the British government is right now looking to gain access to domestic pension funds, as a means by which to finance an array of projects. From broadband expansion to railway development and right through to nuclear power, they apparently have their eye on the capital put away by pension savers to finance a number of ventures.

The report quotes an unnamed source from within the government as stating that for the pension providers that took part in the deals, the returns they could expect would be superior to those of standard government bonds. In addition, they also spoke of the possibility that some of the initial risks of the projects would be underwritten by Britain’s finance ministry.

“If you’ve got a long-term infrastructure need why wouldn’t we be looking to put sensible money into that,” the newspaper reported the source as saying.

Pension funds need to invest their money, they don’t want it sitting in cash or government bonds. If you can put it into something that can get them a decent return, that is far better.”

Over recent years, it has proved increasingly difficult for many of the UK’s pension funds to meet their liabilities, with comparatively few high-yielding yet safe investment opportunities presenting themselves. In addition, private businesses are for the time being showing great reluctance to make any big investment moves, as uncertainty grows in the wake of the Brexit vote.

Along with infrastructure bonds, one additional option being considered is that of allowing cities across the UK where borrowing partners are limited to raise up to £1 billion in bonds, which would be underwritten by the government. One detail the report did not feature was whether or not the government believed that pension fund finance would represent a better option than raising money from bond markets from a tax-payer’s perspective. In the case of the latter, interest rates are lower than 2%.

This isn’t the first time the government has considered alternative options for driving cash into long-term projects on a national basis, though few to date have led to any significant progress.

The newspaper report also spoke of billions of pounds of Canadian pension funds already being in airports and rail projects in the UK. While these investments tolerate significantly higher initial risk, they are also capable of bringing home annual returns in excess of 10%, The Telegraph reported.