UK regulator’s investment cap is too restrictive, BT pension fund warns

The £ 57 billion BT pension fund criticized the UK regulator’s proposals to cap investments in unlisted assets, saying the move was a ‘blunt tool’ that could hamper the country’s transition to a green economy.

The pension regulator has proposed limiting pension plan investments in private market assets, such as property and infrastructure, to no more than a fifth of the plan’s portfolio, to reduce the risk that plans will be forced to sell. in poor markets.

But the BT program, one of the largest in Europe, said the cap represented a “major change” in the interpretation and implementation of investment regulations, and could hamper its efforts to rise. wean off from employer’s cash support. The scheme, which has a deficit of £ 8 billion, is already close to the 20% investment limit proposed by the regulator.

“While we understand that the intention here is to ensure that pension plans have adequate liquidity and flexibility in their portfolios, we are concerned that this change will have significant unintended consequences,” Morten said. Nilsson, Managing Director of the 200,000-member BT plan.

“Well-managed plans often actively seek to exploit the liquidity premium through unlisted investments not traded in regulated markets, for example real estate, private equity and infrastructure investments. These types of investments are very well aligned with the needs of long-term retirement investors, but are not necessarily traded on regulated markets, ”he said.

Nilsson told the Financial Times that there was also a disconnect with the regulator’s proposals and a broader government desire for pension funds to direct more liquidity to illiquid assets to help the country’s economic recovery and transition. green.

He added that it did not seem “reasonable” to restrict investment choices for the scheme, which aims to be self-sufficient, or not dependent on employer support, by 2034.

BT recently agreed to inject an additional £ 2.7 billion into the program by June 2023 to address its deficit.

“My personal view is that the cap is a very straightforward tool for something very complicated,” Nilsson said.

BT’s concerns about the regulator’s proposed cap have been echoed by other large defined benefit plans, which promise to pay members a secure income for life, based on salary and seniority.

“We understand TPR’s intentions here, but the unintended consequences are potentially significant,” the £ 80 billion university pension scheme, which has 420,000 members, told the FT in a statement. “We would not be able to invest in a way that we consider to be in the best interests of our members, and the options available to access investment returns consistent with our liabilities would be reduced.”

The regulator’s proposals are supposed to focus on smaller systems that have “exploited” the regulations by investing up to half of their portfolio in unregulated investments.

The regulator acknowledged “concerns” over its proposed investment limit and said it was considering “any adjustments that may be appropriate” to its plans.

“In publishing our consultation code, we thought it would be helpful to set an appropriate maximum allowance for any scheme, except in exceptional circumstances,” said David Fairs, executive director of regulatory policy.

“However, we do not want this expectation to limit the ability of trustees to invest in assets which may be illiquid and which may offer the opportunity to improve system results, once they have taken the appropriate advice and understand the liquidity risks of their system. ”

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