Rebooting UK capital markets

This paper analyses the potential political, fiscal, and economic benefits of shifting the huge unfunded public sector pensions schemes in the UK from a pay-as-you-go model to a funded model. Such a move would enable them to be global investment powerhouses, driving long-term sustainable outcomes for public servants, cheaper finance for the Treasury, better outcomes for taxpayers, higher levels of investment, deeper capital markets, and a more stable international investment position.

This report highlights the emergence of two separate but related structural problems in UK pensions and capital markets that are undermining the long-term prosperity of the UK. Addressing inadequate pensions for millions of people in the next few decades and rebuilding a virtuous circle of investment and growth in capital markets will require a renewed and concerted focus in government, regulators and the industry.

This short paper is a summary of the key themes in our current work on the urgent need for more structural reform of pensions, capital markets, and long-term investment in the UK. It includes some key points from a recent dinner hosted by New Financial with C-suite representatives from across the industry, as well as conversations with senior politicians, policymakers, and market participants over the past few months. We will be publishing a more substantial report outlining the case for reform and how to deliver it in September.

Analysis of the shift in risk appetite & investment away from equities over the past few decades by UK pension funds.

Depending on your perspective, the Edinburgh Reforms are either ‘a bold collection of reforms’ (Jeremy Hunt); ‘a missed opportunity’ that is ‘too slow, too narrow, and too timid’ (The Daily Telegraph); a risky ‘bonfire of burdens on the City’ (Robert Peston); or ‘an extremely dangerous and wrong path to follow’ (Sir John Vickers). We think the reality is more prosaic.