The missing piece of the puzzle: how a UK pension fund can boost technological development (2023)

This week, British microchip designer Arm filed to sell its US shares for $10 billion after its owners chose New York over London.

The Cambridge-based company is often referred to as the "crown jewel" of the UK tech sector - although it has been owned by Japanese Softbank investors since 2016, so the nation cannot legally claim full tech sovereignty over it.

The UK government is committed to making the nation a leader in technology and science - and with every grant it makes it communicates that it has the potential and ambition to become a technological and scientific "superpower".

But while the country has world-class universities that have spawned a number of brilliant tech start-ups (including ARM in 1990), as well as world-leading fintech and life science industries, a missing piece of the puzzle is funding.

In particular, the significant funding gap between start-ups and scale-ups that has previously led foreign investors to buy ARM and other companies such as London-based DeepMind, which was sold to Google in 2014 and is now centralized. the board of the American technology giantAI chatbot arms race.

For entrepreneurs looking to start a technology business in the UK, there are a number of successful tax breaks - the EIS and SEIS do a great job of supporting technology companies and their founders through the start-up cycle and Series A.

But just when they are ready to scale, when they can make a significant difference to the national economy - by creating jobs, research, research and development, many are forced to look for late-stage capital abroad to ensure the 20 million £150 million for development.

Escalation abroad

Even today, scale-ups are turning to the US for venture capital funding - taking much of the financial ecosystem with them.

last yeartechnology nationfound that around 70% of all UK scale-ups by 2021 were funded by offshore venture capital.

At last month's biennial Investor Showcase Summit, organized by Tech London Advocates and Global Tech Advocates, serial entrepreneur-turned-investor Eric Collins of Impact X noted that among his portfolio of 25 companies, most are "not in the UK." and the risk flow to support the business'.

Collins added that his companies, which include many founders from underrepresented groups, "are looking to the US for fundraising and to find a bigger appetite there."

The missing piece of the puzzle: how a UK pension fund can boost technological development (1)

This perception that the UK does not support technology companies was not helped by the reaction of Microsoft CEO Brad Smith last week after the UK authority on the growing UK cloud gaming market.

"Global innovators, big and small, will note that the UK - for all its rhetoric - is clearly closed for business," Smith said.

Pension scheme

A report published earlier this yearA new national goal, two unlikely partners - former British Labor Prime Minister Tony Blair and former Conservative Party leader William Hague - have drawn up a compelling set of recommendations for how Britain could restructure its institutions to transform the country's fortunes.

The one on digital ID cards grabbed most of the headlines, but another recommendation was to make more efficient use of the capital the UK already has.

One such measure was to unlock a small percentage of Britain's estimated £4 trillion pension fund.

The report said: "The UK has the second largest pension market in the world, but despite this advantage, overseas pension funds invest 16 times more in UK venture capital and private equity than domestic public and private pensions".

For example, the report is about a £330bn Canadian pension scheme investing £300m in a UK company in 2021.

"This is equivalent to more than the entire UK pension system invested in private equity and growth capital this year (£190m)," the report said.

At last month's Investor Showcase, the topic of pension funds came up again and again, with former banker and CEO of the Scale Up Institute, Irene Graham, insisting the issue must be addressed urgently as more tech companies leave the UK and relocate elsewhere.

"What we really need to address is the big problem the UK has compared to its international competitors. And that is institutional money not flowing as pension capital into our start-ups and our gross economy," he told delegates.

The New National Purpose report noted that Canada's CPP was able to make significant investments in high-growth companies because of its size: in 2022 it had £330 billion in assets under management, making it 1,000 times larger than the average UK private pension fund Basilio. .

Meanwhile, the UK market is split into over 5,300 programs with an average size of £330m.

Anne Glover, chief executive of Amadeus Capital, a campaigner for UK financial institutions to invest in riskier asset classes - including venture capital - explained at this year's Investor Showcase that the small size of these individual pools means fund managers prefer risk-adverse strategies , which bring low returns.

The missing piece of the puzzle: how a UK pension fund can boost technological development (2)

It claims this has resulted in an increase in investment in cheap assets such as government bonds, property and tracking indices - all of which have been successful now that interest rates have risen, giving even lower returns to UK pensioners.

"It didn't work - it led to the LDI crisis, where rising interest rates forced pension funds to sell assets - often at significant losses - to meet the liquidity demands demanded by falling values," he said.

"So now [fund managers] look at derivatives as an asset class - but why put them in derivatives when you can put them in long-term, productive financing, meaning tech entrepreneurs who need money and can invest it in something really valuable in the long run,” he said.

Put the pan

The Blair and Hague report recommends consolidating the UK pension system from £5,000 to £100 or less, creating a £100bn pension scheme. British fund with a mandate to invest 25% of its assets in the country's infrastructure, stocks and growth companies.

Glover argues that even a "tiny fraction" of the total assets of a large fund would generate better returns for investors, as well as provide the basis to maintain Britain's scale and contribute to future high-tech companies that would confirm the country's status as a tech superpower.

The pension fund was hampered by the gradual regulation of pensions and financial services. To protect the consumer, it now forces advisers, trustees and actuaries to stuff everything into bonds.

Nor are the current rules conducive to investment in future industries.

British pension funds invest £2,000 in fossil fuels for every person in the UK, according to Friends of the Earth, while current rules make it harder for a company to invest in a green-tech, clean-tech or deep-tech company.

And although most of the largest pension funds have withdrawn from tobacco investments - many still do -herunder North Yorkshire County Council Pension Fund(despite its own stop smoking service).

Lots of reforms

So what is happening behind the scenes to cement the necessary reforms to strengthen the UK, if not on a par with China or the US, then at least on a par with other smaller tech nations like Japan or Israel?

Well, more so than Microsoft's Smith would have you believe. Even before ARM dumped the London Stock Exchange, many parts of the UK financial sector and government were forced into the plan.

The taskforce, chaired by London Stock Exchange Group chief executive Julia Hoggett, was set up last year to support wider regulatory reform and the development of UK capital markets.

Key reforms are also underway to make the UK a more competitive place to do business.

These include, among other things, a review of FRC's corporate governance,Edinburgh reformer, designed to stimulate growth and competitiveness in the financial services sector andHill reviewaims to change the listing rules to make London a more favorable place to go public.

As part of the Edinburgh reforms, a review is also being carried out, led by Rachel Kent, senior partner at Hogan Lovells, into the landscape for UK healthcare analysts.

The missing piece of the puzzle: how a UK pension fund can boost technological development (3)

Both Prime Minister Rishi Sunak (himself a former financial investor) and Chancellor Jeremy Hunt support reform - Hunt announcing measures that could be implemented in an Autumn Statement.

As one of the informants saidTechnical informationlast week: “It may not look like it now, but beneath the surface, paddlers are raging to solve many of these problems.

"This is the first time I can remember where we have a government, a regulator, an ecosystem pulling in the same direction."

While Glover is assured of government support, he fears these initiatives are taking too long.

"There are about five different initiatives underway, and they all identified the problem, but they're all pushing slightly different responses that need to be combined into one solution," he told delegates at the Investor Showcase.

Meanwhile, Graham of the Scale Up Institute urged the tech industry to continue educating institutional investors about the benefits of investing in tech companies as growth stocks.

"We all have a role to play in helping our institutional investors understand the opportunities, and that's what we're focusing on with Global Tech Associates — how we communicate that information because our institutional investor base doesn't understand the high-growth economy we have here." he said.


What happened with UK pensions? ›

A number of pension funds were hours from collapse when the central bank intervened in the long-dated bond market. It came after a series of massive moves in interest rates on U.K. government debt exposed vulnerabilities in liability-driven investment (LDI) funds, which are held by U.K. pension schemes.

Why did UK pension funds nearly collapse? ›

No one had imagined that interest rates would rise so quickly. Pension funds had been struggling to provide the liquidity needed to bail out life insurance policies for several months. The measure, which already had issues, suddenly broke down when the British government presented its budget.

What is the UK pension scheme? ›

You can check your State Pension age on the GOV.UK website

A pension scheme is designed to give you an income, alongside the State Pension. The new State Pension provides up to £179.60 a week (2021-22) – if you want more income than this, it makes sense to save into a pension scheme.

What is the largest pension scheme in the UK? ›

The LGPS is one of the largest pension schemes in the UK. It is a defined benefit pension scheme which means your pension is based on your salary and how long you pay into the Scheme. Your pension is not affected by how well investments perform.

Does the UK pension increase? ›

What is the state pension 'triple lock' and how does it work? Under the triple lock system, the state pension increases each April in line with whichever of these three measures is highest: inflation, as measured by the Consumer Prices Index (CPI) in the September of the previous year.

How much did the UK pension increase? ›

Temporary change for the tax year starting April 2022

The basic State Pension has increased by 3.1% this year, in line with CPI. The average earnings growth was higher, but those figures were affected by the coronavirus (COVID-19) pandemic and so they were not taken into account.

Are UK pensions safe? ›

Typically up to £85,000 per person per institution is fully protected if your bank goes bust. This protection's provided by the UK's Financial Services Compensation Scheme (FSCS). This £85,000 limit also covers pensions and investments.

Who blew up Britain's pension funds? ›

Blame the Bank of England. The global monetary-policy conceit since 2008 has been that central banks could push interest rates to unprecedented lows and then manage financial fragility via tighter regulation.

How many pensions are lost in the UK? ›

Since 2018, the value of lost pension pots in the UK has risen by 37% to reach a total of £26.6 billion. Over 2.8 million pension pots are considered lost, an increase of 75% over the last four years.

Who has the best pension in the world? ›

According to a recent survey, Iceland, the Netherlands and Denmark have the world's best pension system.

Who has the best pension system in the world? ›

No 1 | Iceland | The country has the best pension system in the world.

What is the largest pension in the US? ›

Top Defined Benefit
1California Public Employees' Retirement System$494.5
2California State Teachers' Retirement System$312.2
3New York State Common Retirement Fund$267.8
4New York City Retirement Systems$266.7
6 more rows

Can foreigners get pension UK? ›

If you live or work in another country, you might be able to contribute towards that country's State Pension scheme. If you've lived or worked in another country in the past, you might be eligible for that country's state pension and a UK State Pension.

How many years do you have to work in the UK to get a pension? ›

You'll usually need at least 10 qualifying years on your National Insurance record to get any State Pension. You'll need 35 qualifying years to get the full new State Pension. You'll get a proportion of the new State Pension if you have between 10 and 35 qualifying years.

What age do you get your State Pension in the UK? ›

State Pension age is currently 66 years old for both men and women but will gradually increase again from 6 May 2026. Will I get my State Pension automatically? No – you have to claim it. See page 8 for more information on how to do that.

Why is pension age increasing UK? ›

The government accepted the recommendation of the Independent Review, undertaken by John Cridland, that State Pension age should rise to age 68 over the period 2037-2039. The government outlined that this would be subject to a further Review, to enable consideration of the latest life expectancy projections.

What is female retirement age UK? ›

The State Pension age is currently 66 years old for both men and women but will start gradually increasing again from 6 May 2026.

Does the UK pension increase at 80? ›

For example, you're 80 years old and you get £43 a week basic State Pension, your basic State Pension may be topped up by £50.60 to £93.60 a week.

What percentage of UK population have a pension? ›

What's in the bulletin? The workplace pension participation rate in the UK was at 79% (22.6 million employees) in April 2021, up slightly from 78% in 2020; a growth partly explained by increased public sector employment driven by the government's response to the coronavirus (COVID-19) pandemic.

What is the average total pension in the UK? ›

The actual average retirement pension income in the UK is £361 per week, which works out as £18,772 per year, or £1,564 per month. (GOV.UK).

How much is the UK pension industry worth? ›

The market value of private sector defined benefit and hybrid (DBH) pension schemes fell by 12% between 30 June 2022 and 30 September 2022, from £1.45 trillion to £1.28 trillion; the combined market value of private sector defined contribution (DC) and public sector DBH pension schemes decreased by 1%.

Do pensions survive death? ›

When a participant in a retirement plan dies, benefits the participant would have been entitled to are usually paid to the participant's designated beneficiary in a form provided by the terms of the plan (lump-sum distribution or an annuity).

What is the benefit of UK pension? ›

Pension Credit gives you extra money to help with your living costs if you're over State Pension age and on a low income. Pension Credit can also help with housing costs such as ground rent or service charges.

What is the best pension rate UK? ›

What is a good pension amount? Some advisers recommend that you save up 10 times your average working-life salary by the time you retire. So if your average salary is £30,000 you should aim for a pension pot of around £300,000. Another top tip is that you should save 12.5 per cent of your monthly salary.

Why are UK pensions frozen? ›

Thirty-one per cent of UK adults will be relying entirely on their state pension when they retire. That's bad enough, but imagine if your state pension, small as it is, doesn't even increase each year to keep up with the cost of living. This is Reason Number One why your UK pension might be frozen.

Why did pensions begin to fail? ›

Background. The ratio of workers to pensioners, the "support ratio", is declining in much of the developed world. This is due to two demographic factors: increased life expectancy coupled with a fixed retirement age, and a decrease in the fertility rate.

Why did pensions go away? ›

In reality, large corporations were lobbying Congress to shut down their pension plans because they were too expensive to administer, and the employer held all of the investment risk. Corporate America needed a way to reduce costs and transfer the risk from the company onto the employee.

What percentage of pensioners are poor in UK? ›

As well as ageing, we are also seeing ever-greater numbers of people living with multiple health conditions. And, more people are living alone, particularly concerning since the poverty rate for single pensioners (20%) is nearly double that for couples (11%).

Can I lose my pension UK? ›

Your employer cannot touch the money in your pension if they're in financial trouble. You're usually protected by the Pension Protection Fund if your employer goes bust and cannot pay your pension. The Pension Protection Fund usually pays: 100% compensation if you've reached the scheme's pension age.

In which countries are UK pensions frozen? ›

Most British Commonwealth countries are included in the frozen list; these include countries, such as Australia, Canada, South Africa, New Zealand, Thailand and India, as well as British overseas territories such as the Falkland Islands.

Why did they get rid of pensions? ›

In reality, large corporations were lobbying Congress to shut down their pension plans because they were too expensive to administer, and the employer held all of the investment risk. Corporate America needed a way to reduce costs and transfer the risk from the company onto the employee.

When did pensions go away in America? ›

Employers were completely in control of and responsible for pensions, which would guarantee specific payments to retired workers. Starting in the 1980s, pensions rapidly began disappearing, as the defined contribution 401(k) plan dominated.

When did the US get rid of pensions? ›

Since the 1980s, 401(k) accounts have effectively replaced pensions to become one of the most popular retirement plans for American workers.

What percentage of Americans have a pension? ›

Of course, these figures reflect the situation of people who have retirement accounts, though about a quarter of Americans don't. For those who do, 54% have employer-sponsored accounts and 48% having savings in non-retirement accounts. A smaller percentage (21%) have pensions.

Are UK pension funds in trouble? ›

UK pension funds have drastically cut their exposure to equities in their home market over the past 25 years, sucking out a whopping £400 billion of demand, according to a new report, adding to a deep valuation discount that is making London increasingly unattractive for listings.

How many British pensioners live abroad? ›

There are around 247,000 British citizens aged 65 and over living in other EU countries (excluding Ireland), and 85,000 people aged 65 and over from other EU countries (excluding Ireland) living in the UK.

What countries are frozen UK pensions? ›

Most British Commonwealth countries are included in the frozen list; these include countries, such as Australia, Canada, South Africa, New Zealand, Thailand and India, as well as British overseas territories such as the Falkland Islands.

What is the average pension in the UK? ›

On face value the question of 'what is the average' is a simple one, the answer is £511 per week (£26,572 p.a.) for a retired couple and £246 per week (£12,792 p.a.) for a single retiree as per the most up to date Government's Pensioners' income figures.

How much do most Americans retire with? ›

The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.

Are pensions better than 401k? ›

Pensions offer greater stability than 401(k) plans. With your pension, you are guaranteed a fixed monthly payment every month when you retire. Because it's a fixed amount, you'll be able to budget based on steady payments from your pension and Social Security benefits. A 401(k) is less stable.

Why saving 10% won't get you through retirement? ›

Mathematically, 10% Just Isn't Enough

By saving 10%, your money would need to grow at a rate of 6.7% a year for you to retire 40 years from when you start. In order to retire early, after 30 years of contributing, you would need an unrealistically high rate of return of 10.3%.


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