A bid to include investment trusts in the Pension Schemes Bill has been met with resistance in the House of Lords debate on the Pension Schemes Bill.
The Pension Schemes Bill is being debated in the House of Lords, discussing recent proposed amendments.
Amendment 46A from Baroness Lady Bowles of Berkhamsted, supported by Baroness Ros Altmann, proposed that investment trusts and REIT’s were included as eligible wrappers for meeting the thresholds for qualifying assets under the Mansion House Accord.
Those against the amendment countered that investment trusts are ‘just buying and selling a financial asset’ and do ‘nothing to put money into the UK economy.
The qualifying assets refers to the assets that can be considered when the Government is considering mandating pension funds to invest in certain types of investment or being forced to invest in the UK under its new powers under the Pension Schemes Bill.
Under the current proposed rules within the new Bill, the Long-Term Asset Funds (LTAF) (which is the semi-liquid product that has been developed to hold ‘qualifying assets’) can be used by pension schemes to gain access to these illiquid assets. Any investment trusts or REITs held would not count for the purpose of meeting any asset allocation requirements around ‘qualifying assets’ if the Government uses their reserve power to mandate pensions to invest in certain types of investment.
Baroness Ros Altmann said the exclusion of investment trusts and REITs is anti-competitive.
She said: "UK listed investment trusts and REITs have invested billions of pounds in productive assets, alternative energy, real estate, venture capital, and more – precisely the assets which the Mansion House Accord requires pension funds to buy. Therefore, banning UK pension schemes from including them as qualifying assets for potential mandatory investment allocations makes no sense at all.
"This seems designed to drive out successful smaller investment companies, whose closed-ended structure is actually well-suited to holding illiquid long-term assets, in favour of new Long-Term Asset Funds, which will be open-ended funds that are being set up to take advantage of increased investment in private equity and real assets."
Christian Pittard, head of closed-end funds at Aberdeen Investments, said: “It is an irony that a sector which literally invented collective investing over one hundred and fifty years ago, and which financed the American railway boom, has been dismissed as ‘just a financial asset.’
“Far from being “just shares”, data from the Association of Investment Companies shows that investment trusts currently have over £30bn invested into infrastructure assets alone in the UK.
“Investment trusts are proven vehicles for channeling long term capital into productive assets. They invest in infrastructure, housing, digital connectivity, clean energy and the logistics backbone that underpins the UK economy. A good example is Tritax Big Box REIT, which invests in and delivers critical logistics real estate across the UK, with 49 million square ft of logistics under management. These are precisely the types of investments the UK economy urgently needs more of.”
There has been widespread concern about the suggested provisions allowing Government to mandate pension scheme investments.
The Pensions Management Institute (PMI) and the Society of Pension Professionals (SPP) said they believe that such powers represent a fundamental shift in the UK pensions framework.