Pension funded infrastructure projects and auto enrolement
A part of the Chancellor of the Exchequer’s Autumn Statement back in November, which must have excited the battered construction and building industries, was a government-backed infrastructure fund aimed to use pension fund capital to boost economic growth.
In essence the government wants pension funds to make a massive direct injection into the UK economy through infrastructure investment. However, we are still to see if this interesting plan will take off.
The real challenge is how the government plans to attract UK pension funds en masse to an asset class, which they have been relatively unenthusiastic about.
Business Secretary Vince Cable noted: “There is a large pool of capital in financial institutions like pension funds looking for long-term investment opportunities with a reliable, utility return. The issue is how to channel this money into large scale infrastructure investments, and quickly.”
Already some pension funds are supporting Registered Social Landlords (RSLs) looking for funding to build affordable housing. They are attracted by this low risk investment opportunity.
However, an interesting side to this announcement, which is creating bad feeling amongst the general public, is the initiative’s perceived link to the auto enrolment pension scheme also being introduced by the government.
For those who do not know, starting from 2012, everyone employed in Great Britain will be enrolled automatically into a pension, provided they:
o are aged at least 22 years old
o have not yet reached State Pension age
o earn more than £7,475 a year
Already some folk are linking the infrastructure funding initiative with the fact that there will be even more money sloshing around pension funds following the government ‘forcing’ both employers and employees to pay money into pension funds.
Stealth tax – the cry goes up! PAYE, National Insurance and now pension contributions the government can use to fund infrastructure projects.
However, the difference will be that the pension fund payments will not disappear into a government coffer but will be managed in order to ensure individual’s financially fit future. It is an investment not a tax.
However, many remember the Maxwell and Daily Mirror pension disappearing act. Central government, the Personal Accounts Delivery Authority (PADA), the National Employment Savings Trust (NEST) and employees will have to effectively communicate this positive investment message to employees and the public as a whole.
The use of pension funds to support infrastructure projects that will help bump start the UK economy is a sound idea. But it has to be promoted and managed through an effective communication and employee engagement strategy to ensure the country recognises its importance and gets behind the initiative.
Does anyone know if anyone plans to support auto enrolment and infrastructure with an appropriate communication strategy?
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