Chancellor George Osborne is making good on his promise of getting more pension money into infrastructure. Yesterday, the Chancellor announced the signing a memorandum of understanding with two pension bodies, representing over 1,200 pension funds, to “facilitate the development of a new pension infrastructure platform to help pension funds invest more in infrastructure”.
The agreement was signed with the National Association of Pension Funds (NAPF), whose members hold about £800 billion (€1.2 billion; $931 billion) of assets, and the Pension Protection Fund, which protects the schemes of more than 12 million members and has a portfolio of over £6 billion.
The memorandum foreshadows tomorrow’s announcement of a £30 billion, 10-year National Infrastructure Plan which the Chancellor hopes will help the UK stave off a double-dip recession. It is understood the government will try to encourage UK pensions to fund up to £20 billion of the programme, with the remaining £10 billion coming from the public purse.
It’s not clear yet how pensions will be able to participate in the funding of these projects, but one thing is certain: the current procurement model for private sector infrastructure will have to change to accommodate this new source of capital.
“This could be a real win-win,” commented Joanne Segars, chief executive of NAPF. “Infrastructure is a good fit with the needs of pension funds. But at the moment many pension funds struggle with the mechanics of investing in infrastructure. They need a simpler financial vehicle that helps them to get on board with bricks and mortar,” Segars stressed.
Acknowledging the need for a different set of rules, Chancellor Osborne had already announced two weeks ago that the Treasury would reform the Private Finance Initiative (PFI), the country’s standardised procurement process for public-private partnerships. The idea is to tweak PFI to make it cheaper, more transparent and friendlier to pensions.
The UK is seeking to develop in excess of £200 billion of new infrastructure over the next five years.