Transport tycoon Sir Brian Souter has criticised the “pessimism” of the pensions industry, insisting a switch away from investing in businesses to putting money into gilts and bonds has created an “ever-increasing cycle of unaffordable funding”.
The chairman and co-founder of Stagecoach criticised funds for their “lack of faith in investing in our youth”.
With returns on investments in gilts diminishing – to the point where Sir Brian said it was expected some of these investments would lose money – the entrepreneur said it was now time to look again at the investment approach taken by many pensions schemes.
Pension funds can be “fabulously large and important pots” of money but he claimed at the moment these are “not being efficiently invested in ways that encourage enterprise and employment”.
Sir Brian, who is the president of accountancy body Icas, made the comments in an article in the organisation’s CA magazine.
He stated: “You might expect our pension schemes to be investing heavily in businesses and growth for the future, but they’re not.
“There is growing acceptance that these fabulously large and important pots of defined benefit investment assets are, for some reason, not being efficiently invested in ways that encourage enterprise and employment.
” We have record levels of investment into pension schemes and we have amongst the best-funded pension arrangements in Europe, so why do we have an apparently ever-growing pensions black hole?”
Sir Brian, who started his working life as a bus conductor, said his father had “entrusted his pensions savings with me” when he was setting up his business.
He said figures from the Pension Protection Fund showed that over the last decade “pension schemes have by and large switched from investing in businesses (through equities and a wide range of corporate bonds) to investing instead much, much more in UK Government gilts and a narrow range of similar bonds”.
In 2006 a typical UK pension scheme invested more than 60% in equities and less than 30% in gilts and bonds – but he said that had now reversed so the typical scheme holds less than 30% in equities and more than 50% in government gilts and bonds.
” I was really surprised but also disappointed at the level of pessimism shown by the pension industry both about the future prospects for business and its lack of faith in investing in our youth, our next generation of business people and entrepreneurs,” he said.
“A real concern is that this lack of belief is creating a vicious circle of poor confidence with low aspiration that seems to have convinced nearly everyone that the pensions of the past are just not affordable for the next generation.”
Such is the situation that he claimed “baby boomers may find themselves being accused of pulling up the drawbridge, denying the young access to the good pensions they devised for themselves”.
He added: “By reversing the recent trends towards gilts and bonds, we can break the current cycle of unaffordable funding and provide the same level of security for future generations that today’s pensioners enjoy.”