Labour’s nationalisation plans could dent scheme portfolios

Labour’s manifesto promises a raft of measures to increase both state and occupational pension provision, but scheme decision-makers may be worried by the portfolio impact of a programme of redistributive policies.

Trailed for some time, the policy of nationalisation would see energy, water, transport systems and Royal Mail come into public ownership, along with broadband infrastructure and provision.

Many millions of others are also likely to suffer indirect consequences as a result of any decline in confidence in investing in the UK economy and the impact on gilt markets

Nigel Peaple, Pensions and Lifetime Savings Association

According to the PLSA, nationalising private sector assets without adequate compensation could have a knock-on impact on UK savers’ retirement prospects, since pension funds constitute a large part of the capital pool backing these projects.

Nigel Peaple, the body’s director of policy and research, said: “We are extremely concerned by the significant negative implications Labour’s plans to nationalise water and energy utilities, train companies, Royal Mail and parts of BT Group could have on the value of UK savers’ pensions, and the wider longer-term impact on the private sector’s willingness to invest in the UK infrastructure and economy.”

Compensation by a Labour government could mitigate the initial impact on pension funds, but Mr Peaple feared that the long-term effects could be equally pernicious, urging the party to clarify its plans and reassure savers.

“Many millions of others are also likely to suffer indirect consequences as a result of any decline in confidence in investing in the UK economy and the impact on gilt markets,” he said.

“In addition, there are significant complexities with valuation, particularly in relation to private and unlisted equities.”

Inclusive ownership threatens second hit

In addition to transferring utilities into public ownership, the manifesto also includes a pledge to transfer some ownership of companies to the workers they employ.

Large companies would set up inclusive ownership funds to hold 10 per cent of their share capital. The funds would then distribute dividend payments to workers, capped at £500 a person with the rest going to an apprenticeship fund.

Analysis by law firm Clifford Chance suggests this policy could also have a negative impact on schemes, costing investors £340bn in capital, with at least £31bn of that borne by pension funds.

It suggested that workers will only see around £1bn in benefit due to the operation of the cap, while global companies with UK parents could be disproportionately hit.

Pensioner incomes to see boost

Elsewhere in the manifesto, Labour sought to strengthen the position of pension funds and other stakeholders in companies.

“We will amend the Companies Act, requiring companies to prioritise long-term growth while strengthening protections for stakeholders, including smaller suppliers and pension funds,” it said.

Protecting pensioners themselves proves a major feature of the policy document, which includes an uncosted promise to compensate women caught out by rapid rises in state pension age.

Labour will abandon plans to raise the SPA further, leaving it at 66, and maintain the triple lock for uprating the state pension. Overseas pensioners will have their payments protected against inflation.

The party will also end the current surplus-sharing agreement in the Mineworkers’ Pension Scheme, where the government takes 50 per cent of surplus generated in return for guaranteeing scheme benefits. Under Labour, the scheme would retain 90 per cent of excess returns.

Some measures introduced by the Conservative government will be rolled over with modifications, as indicated by the last shadow pensions minister Jack Dromey.

Legislation enabling collective defined contribution schemes will be passed, while the pensions dashboard project will set up a single state provider instead of commercial variants.

In one move that will appeal to pensions experts, a pension commission would also be set up to recommend target levels for workplace pension saving. Auto-enrolment would be extended to the self-employed.

Cost of state pension ‘gargantuan’

Sue Waites, a partner at Hymans Robertson, said: “We welcome the plans to expand AE to the UK’s 5m self-employed workers and those on lower incomes, but this alone will not be enough.”

She continued: “Other measures, such as pushing out the target retirement date to coincide with their state pension age and further increasing contributions to a total of 12 per cent, will be needed to achieve an adequate income in retirement. Current contribution levels of 8 per cent are simply not enough.”

Meanwhile, others drew attention to the borrowing demands associated with such wide-reaching increases in spending on state pensions.

“Make no bones about it – this is a gargantuan promise from Labour with enormous ramifications for those affected, society as a whole and long-term government spending,” said Tom Selby, senior analyst at AJ Bell.

“It is therefore incredible that the impact this will have on taxpayers doesn’t appear in the policy costings. This may simply be because planned increases in the state pension age run beyond the next parliament, but such a short-term approach to something as vital to the long-term future of the UK as state pension reform is hardly encouraging.”