{"text":[[{"start":5.55,"text":"Chatting with friends on the way to one of my fave pubs on Chichester Harbour last week, I received the best piece of financial news in years. I skipped the rest of the way there and downed three more pints than usual in celebration."}],[{"start":18.1,"text":"Here in the UK, we can withdraw a quarter of our pension tax-free upon turning 55. That age is rising to 57 soon, though, and it turns out I had the wrong date. I’m actually on the right side of the line and can plunder my pension in August next year."}],[{"start":34.5,"text":"Everyone should if they can, otherwise the money will vanish in inheritance taxes or some other ruse that Britain’s skint government devises. Pensions may be tax-efficient for savers the world over, but they are, by definition, long-run vehicles and frankly, anything can happen."}],[{"start":50.9,"text":"President Cristina Fernández de Kirchner, for example, passed a law in 2008 to nationalise private Argentine pension funds. Overnight, thirty-odd billion dollars of assets were transferred to the state. It was immediately pissed up the wall trying to support sovereign bond prices as well as public companies and infrastructure projects."}],[{"start":71.35,"text":"At least she was upfront about it — unlike the pension schemes bill working its way through the UK parliament at the moment. I doubt whether most voters have a clue that soon a portion of their savings will be coerced into ropey private assets or used to finance net zero targets."}],[{"start":87.05,"text":"Of course, it’s financial repression. But then again so are taxes, regulation, quantitative easing, inflation and a whole host of other tricks governments use to fleece us. To be honest, I’m amazed our gigantic pension pots have been left alone for so long."}],[{"start":102.7,"text":"I say “our”, but not mine. Self-managed and single-company pensions are excluded from the legislation, as are defined benefit schemes. It’s the myriad default plans on the hook, as well as the huge public sector ones."}],[{"start":116.35000000000001,"text":"Some people are kicking up a fuss — and let’s face it, they have a point. It’s obviously wrong that private assets can be cajoled into funding state priorities. Politicians also have a terrible record at allocating capital."}],[{"start":129.95000000000002,"text":"In practice, however, is it that bad? Most pension trustees are rubbish investors too, in my experience. Every one of the corporate pension plans I’ve been a member of during my career had woeful performance. Mostly from being overly conservative."}],[{"start":144.9,"text":"Plus, as someone with almost a third of their pension in UK equities, I would be delighted if a trillion-pound savings pool had to increase its allocation from about 5 per cent now to 10 per cent, say."}],[{"start":156.5,"text":"To be clear, this isn’t new investment, nor a flow into the market, as I’ve explained often. Equity capital is permanent. Someone has to sell their shares for pension funds to buy them. But while UK-listed companies won’t benefit in any fundamental way, it could result in a technical squeeze in stock prices."}],[{"start":173.75,"text":"I’m all for that. And primary markets should also benefit. Expect a surge in initial public offerings. I might even dream up some crappy business to list myself, given that managers will be under huge pressure to “support Britain’s future”."}],[{"start":188.55,"text":"Likewise, you can imagine how much the private equity industry is looking forward to offloading the dross on its books to dumb pension funds. Indeed, the latter have already agreed voluntarily to raise allocations to private markets to 10 per cent, with half in the UK."}],[{"start":205.9,"text":"Yet the new bill includes a controversial “reserve power” that would allow the government to set binding targets if pension funds drag their feet. Again, I’m not as fussed about this as the House of Lords seems to be. Having a tenth of one’s portfolio in private assets is hardly extreme."}],[{"start":223,"text":"One issue is whether trustees are clever enough to understand the likes of private equity, private debt, venture capital, and infrastructure. And here another part of the legislation does make sense — the consolidation of smaller funds."}],[{"start":237.4,"text":"Long ago, I ran institutional portfolios in Australia. The reason the pension industry there is comfortable investing so much in private markets is that the funds themselves are huge and rammed with talent. "}],[{"start":249.85,"text":"Yes, they invest heaps in domestic companies and growth projects. But they do so not because they are mandated to. The local ecosystem is self-supporting. Only the best projects see the light of day because only then will knowledgeable pension funds back them."}],[{"start":265.3,"text":"Hopefully, this will happen in the UK too, as schemes are merged and thus grow in sophistication and leverage. It would be wrong, however, to water down their fiduciary duty with respect to maximising returns."}],[{"start":277.65000000000003,"text":"While trustees will still be legally required to act in members’ best interests, the new legislation suggests that investing in the UK is consistent with fiduciary duties. Indeed, the government believes that UK infrastructure and growth companies are return-enhancing opportunities — and repeats this often."}],[{"start":294.65000000000003,"text":"In addition, by encouraging long-run or illiquid assets, the legal fear of going off-piste is reduced. Fund managers and trustees are lemmings anyway. Once a few head one way, the rest will soon follow."}],[{"start":307.6,"text":"Performance may well improve. But as ever, there’ll be periods of underperformance — and that’s when things unravel. I guarantee that blaming “our forced allocation to the UK” will be a frequent excuse for poor returns in future. Pensions may even start to provide two sets of performance data, including and excluding the UK."}],[{"start":327.8,"text":"If domestic asset prices do shoot the lights out, however, you won’t stop hearing about the genius foresight shown by the fund managers and pension trustees. But they’ll be popping the corks anyway, as bigger, consolidated plans mean lower costs and, no doubt, higher bonuses."}],[{"start":345.65000000000003,"text":"That is why the industry is complaining about the new legislation, but not that much. There’s cash to be made aplenty — and I’m betting some of it will come my portfolio’s way."}],[{"start":355.8,"text":"The author is a former portfolio manager. Email: [email protected]"}],[{"start":null,"text":"
| Assets (£) | Weighting | Total returns YTD | |
|---|---|---|---|
| Fidelity Cash Fund (acc) | 643,341 | 100% | 0.7% |
| S&P 500 (GBP) | -2.8% | ||
| Morningstar GBP Allocation 60-80% Equity | -0.1% | ||
| Due to trading activity this table will be updated on May 1, in accordance with the column rules |