The British Business Bank (BBB) and a group of the UK’s biggest providers of defined contribution (DC) schemes have proposed investing up to five per cent of private-sector retirement pots into venture capital funds.
According to a report, entitled The Future of Defined Contribution Pensions, savers in DC pension schemes are missing out on higher returns due to a lack of investment in some of the UK’s fastest-growing and most innovative companies.
Moreover, the report says that retirement savings for the average 22-year old could be increased by as much as 12 per cent if schemes made a small allocation to venture capital and growth equity funds.
According to the report’s authors, five per cent of DC assets would be an appropriate amount to invest to balance the risk of backing start-ups against the benefits of a successful business. With assets in DC schemes forecast to exceed £1 trillion by 2029, venture capital firms could get a funding boost of £50 billion to pass on to new businesses.
The report highlights the fact that, too often, pension schemes invest in listed assets, such as equities and bonds, and passive strategies, which are easier and cheaper to manage and trade.
However, many of the most innovative and highest growth companies are not publicly listed but instead receive their funding from private venture capital and growth equity funds.
The report concludes that with DC schemes currently only investing a small amount in alternative assets such as venture capital, pension savers may be missing out on opportunities for better returns.
However, critics claim that while the move would unlock billions for promising start-ups, it could potentially put retirement savings at risk.
Jon Stocker, General Practice Partner at Milsted Langdon, said: “It is promising to see that millions of venture capital funds could be unlocked for start-ups through venture capital funding, but we will have to wait and see whether there is sufficient uptake amongst pension funds to make the finance proposed available.
“If you have a start-up business, and would like further support on how to secure funding for your business, then please get in touch today.”
For more information about how Milsted Langdon can help, please contact Jon at firstname.lastname@example.org or by calling 01935 383500.