A fund manager association has expressed disappointment after “much-needed” pensions reform were left absent from the King’s Speech yesterday, claiming the problem could block the required financing of Labour’s promised housing revolution.
The industry reacted positively to the King’s Speech yesterday, which set out a wide range of bills addressing areas such as planning reforms, renters’ rights, devolution and climate change, but there was no mention of pensions reform.
UK defined-contribution (DC) pension schemes are gradually replacing defined-benefit (DB), which have traditionally been long-term funders of UK property.
However, there are structural impediments to DC funds investing in property, which is why the Association of Real Estate Funds (AREF) has been calling for the government and regulators to address them.
Paul Richards, chief executive of AREF, whose members include property funds managing £50bn of British savers’ money, said he was “disappointed to see no mention of much-needed pensions reform”.
Richards said: “DC schemes – growing at a remarkable rate – find it too hard to invest in property. So, they can’t properly finance the housing revolution. We’ll continuing engaging with the Government until they can.”
Meanwhile, Richards highlighted that the Planning and Infrastructure Bill outlined in the King’s speech means there is now a blueprint for more streamlined planning, enabling builders, developers and property funds to enact long-awaited solutions to the housing crisis.
Elsewhere, the King’s Speech said it would consolidate the DB market through Superfunds. The government said this “will offer greater protection for members in closed legacy DB schemes from the risk of losing part of their pension if their employer becomes insolvent”.
With the consolidated pension funds, the government aims to unlock investment through a wider range of assets, which could be seen as a move towards countries like Australia.
Australia’s superannuation system is often held up as an example to follow regarding DC pension fund consolidation in the UK.
In recent years, the London Stock Exchange has lost its shine for investors as overseas markets promise even better returns, and questions have been raised as to whether UK pension funds invest enough in UK shares and property stocks.
Australia mandates that domestic pension schemes allocate a minimum percentage to the local market. Whether the UK adopts something similar depends on whether pension funds should have an overriding objective to support their domestic companies or meet their yield objective – i.e. the income requirements of the pensions they are investing on behalf of.
Speaking to Property Week earlier this year, Aynsley Lammin, equity research analyst at Investec, said: “Mandating [UK pension funds to allocate a minimum percentage to its local market] doesn’t really solve the issue because all you’re really doing is forcing people to buy stocks –but fundamentally should they be buying them?”
“That comes down to the kind of financial metrics that the UK market delivers in terms of growth margins and returns, so it’s addressing the symptom but not the cause.”
The most recent data shows UK property share prices rose 19% year on year in the second quarter of 2024, but dipped 1.28% on a quarterly basis.