The UK tech industry has reacted positively to an agreement by nine domestic pension providers to assign 5% of their default funds to “unlisted equities” by 2030 under plans outlined in the chancellor’s Mansion House reforms.
The hotly anticipated move will unleash as much as £50bn from defined contribution pensions and £25bn from local government pensions for high-growth companies, according to Chancellor Jeremy Hunt.
It is intended to increase the historically slow flow of capital from UK pension funds into earlier-stage startups.
“If up to £50bn is unlocked by 2030 as the government promises, our homegrown founders will get the fuel they need to build world-beating companies,” said Robin AI CEO Richard Robinson.
“As the US has shown when pension funds flow into the venture capital industry, it creates a virtuous circle of innovation.”
The government is launching a separate consultation on doubling the current levels of private equity funding from local government pension schemes to 10% by 2030. It is proposing a deadline of March 2025 for local government pension funds to transfer assets to pools and “setting a direction that each pool should exceed £50bn of assets”.
Tim Levene, CEO of Augmentum welcomes the “long overdue” Mansion House reforms as pensioners can “further benefit” from the “country’s best-performing asset classes”, which are “underweight” to pension funds in Australia and Canada.
Brent Hoberman, executive chairman and co-founder of Founders Forum, said: “The planned pension reforms will enable for capital to be productively invested in funds and scaleup companies in the UK.
“This should be welcome news to the UK industries of the future, their ability to attract more capital will create more national champions and generate growth, jobs and increased tax revenue.”
Ruston Smith, chair of Smart Pension, one of the nine signatories to the agreement, said: “Giving UK savers access to higher net returns by investing in unlisted equities, including innovative high-growth UK companies, as part of a well-diversified portfolio, will deliver these outcomes over time.”
British Business Bank’s role
The government is also in talks with the British Business Bank on how it can “play a greater role” in the plans.
It could see the British Business Bank allowing pension funds to tap into its access to incoming growth companies and research proposals before the Autumn Statement.
Louis Taylor, CEO of the British Business Bank said: “The British Business Bank fully supports the Chancellor’s request to explore establishing a vehicle that could receive third-party capital such as pension fund investment, making use of the Bank’s track record and market access to a range of promising high growth companies.”
The chancellor also reiterated plans to launch a new stock market for private companies to raise capital without floating, known as an “Intermittent Trading Venue”. Separately, the government is moving to make shares fully digital rather than on paper.
Merging money through collective defined contribution funds is another priority for the government.
Pension fund caveats
While the pension reforms have been broadly welcomed by the UK tech industry, some have pointed to areas that must be carefully considered.
David Holt, partner at the law firm Potter Clarkson, said the Mansion House reforms raise “intriguing questions” and will “undoubtedly create a further need for substantive and technical due diligence on proposed investees in order to ensure that the Theranos-type issues do not arise.”
Tim Mills, managing partner of ACF Investors, said that “for these reforms to truly work and deliver genuinely long-term capital, they must be ring-fenced from the shifting short-term objectives of investor groups or the ever-changing political landscape”.
Meanwhile, Richard Blakesley, founder and CEO of Capital Pilot, said that deploying pension funding at scale for later-stage VCs “must take into account the need to build a much broader base of investment at pre-seed and seed stage. Or there won’t be enough businesses for later-stage funds to invest in.”