Industry welcomes talk of UK’s £50bn ‘pension infra fund’

The UK government is rumoured to be unveiling a plan on November 29 that will pool local pension assets to invest in the country’s infrastructure development. The Civil Engineering Contractors Association welcomed the plan, but warned pension investment ‘must not be seen as a magic bullet’.

Such is the directionless state of UK infrastructure investment that industry associations have taken to reacting to rumours of forthcoming ‘big’ infrastructure announcements. 

That was the case with the Civil Engineering Contractors Association (CECA), which yesterday issued a statement welcoming talk of forthcoming government plans to announce a £50 billion (€58 billion; $79 billion) road-building and housing scheme that will be funded using money from UK pension funds. 

To be fair to CECA, where there is smoke there is usually fire, and there’s been a lot of smoke recently regarding the government’s alleged plans to bring UK pensions into infrastructure investment, expected to be announced on November 29 as part of the government’s growth review.

UK media reported last Sunday that the government is set to unveil a framework to encourage and pool local pension assets of up to £50 billion to fund its infrastructure plans, which in addition to roads and social housing, are also set to include investments in power and broadband. This will lead to the creation of a so-called “pension infrastructure fund”, which will be remunerated via energy bills, tolls or rents generated by the various projects it invests in.

Part of the government’s strategy will be to tell UK pensions to “Walk Like a Canadian” and emulate Canadian pensions funds such as Borealis – the investment arm of Ontario Municipal Employees Retirement System – and the Ontario Teachers’ Pension Plan, which paid £2.1 billion last year to run the high-speed rail link connecting London with the Channel Tunnel for 30 years.

“We know there is a large amount of institutional investment in pension funds and insurance companies looking for a safe return. At the moment, it is extraordinary that foreign institutions will invest in British infrastructure but British companies won’t,” business secretary Vince Cable was quoted as saying in the UK’s Sunday Times newspaper.

He added: “What we have to do is create a framework regulation so that private investors will have the confidence to invest in big projects and help get the British economy moving again.”

CECA, though, struck a note of caution about potential pension fund investments in infrastructure: “This ‘pension infrastructure fund’ offers a part solution to the infrastructure deficit, provided it is implemented in a coherent manner, without delay. However it must not be seen as a ‘magic bullet’ that will deliver much needed growth alone”.

For that to happen, CECA urged the government to cut back on red tape and “identify ‘shovel-ready’ projects that can quickly create growth”.