Government plans to create one of the largest pension schemes in the world from a merger of 87 local authority retirement funds could have detrimental effects on the northern economies, according to former Treasury adviser Lord Jim O’Neill. The proposed merger, aimed at streamlining costs and improving investment options, has raised concerns about potential negative impacts on innovative startup businesses in the north of England.
Potential Harm to Northern Economies
Lord O’Neill, who currently chairs the Northern Gritstone investment fund, warned that the creation of a large pension fund solely focused on backing large companies could undermine investment in groundbreaking businesses across cities like Manchester, Leeds, and Sheffield. He emphasized the importance of preserving local knowledge and commitment to supporting local businesses found in the current system.
Innovative Startup Ecosystem at Risk
Many innovative startup businesses in the north of England, often spun out of universities, could face challenges if the new pension scheme prioritizes investments in larger corporations. O’Neill highlighted the significant contributions of local authority pension fund managers in supporting British startup businesses, such as chip maker Pragmatic Semiconductor, which was founded by academics from Cambridge University.
Northern Gritstone’s Impact
Northern Gritstone, which receives more than 50% of its funds from individual local authority pension schemes, plays a crucial role in backing over 20 businesses, including Pragmatic Semiconductor. These investments have helped foster a vibrant ecosystem of innovative companies that contribute to the region’s economic growth. O’Neill expressed concerns that a merged pension fund might not prioritize investments in such businesses, potentially stifling their growth and innovation.
Rachel Reeves’ Taskforce and Proposed Reforms
In response to the challenges facing pension schemes, Rachel Reeves established a taskforce comprising industry executives and government officials to revamp the industry, reduce costs, and enhance investment opportunities. One of the key objectives of the taskforce is to facilitate the merger of the 87 individual pension schemes within the Local Government Pension Scheme (LGPS) in England and Wales.
Potential Benefits and Risks of Merging Pension Schemes
While a merger could lead to cost savings and improved investment options, there are concerns about the loss of local knowledge and the shift towards a more centralized investment approach. Duncan Johnson, CEO of Northern Gritstone, pointed out the risks associated with merging local authority funds into larger schemes that may prioritize financial returns over local economic development.
Impact on University Spin-Off Businesses
Universities play a vital role in fostering innovation and entrepreneurship, with many spin-off businesses emerging from academic research. Johnson emphasized the importance of supporting universities to ensure the growth of these businesses and maintain the UK’s position as a leader in technology and innovation. Without adequate government support, universities could face funding shortfalls, jeopardizing the development of investable businesses.
Government’s Response and Proposed Reforms
In light of the concerns raised by industry experts and stakeholders, the government defended its planned reforms to the UK pension system, including the merger of local government schemes to enable investments in a wider range of UK assets. The government spokesperson indicated that legislative action might be considered if insufficient progress is made by a set deadline.
Challenges and Opportunities in Pension Scheme Reform
As the government pushes forward with reforms to streamline pension schemes and enhance investment opportunities, it must carefully balance the need for efficiency with the preservation of local knowledge and support for innovative businesses. Stakeholders across the industry are calling for a collaborative approach that considers the unique challenges and opportunities present in the northern economies.
Ensuring a Bright Future for Northern Businesses
To safeguard the growth and success of innovative startups in the north of England, policymakers, pension fund managers, and industry experts must work together to develop a sustainable investment strategy that supports local businesses while delivering long-term returns for pension savers. By striking the right balance between financial objectives and local economic development, the pension system can play a pivotal role in driving innovation and prosperity in the region.
