Response to The Future of Defined Contribution Pensions Report

The latest report from the British Business Bank, The Future of Defined Contribution Pensions, paints a clear picture of both the opportunities and challenges for defined contribution scheme investment in venture and venture growth capital.

It’s encouraging to see that the report concludes there is a strong case for high growth, innovative UK companies to be supported by investment from defined contribution pension schemes. The findings show a 22-year-old new entrant to a default fund following a ‘lifestyle’ strategy could achieve a c.7-12% increase in their total retirement savings by investing in venture and venture growth capital.Achieved by an average c.5% allocation to VC/GR over their working life.At the same time, we are seeing a significant shift in sentiment from savers looking to better understand where their pension pot capital is going and the difference that their investments make to local and global economies. Performance potential plus the tangible benefits that venture and venture growth capital bring to small businesses is something defined contribution pension scheme sponsors should therefore carefully consider.

However, perceived high costs, high risk and complex management structures are issues we need to address if we are to make investment viable on a greater scale. The Bank’s work with the BVCA and the fund community to improve the quality and availability of industry-level data on historic returns of the asset class is pivotal to this. This data forms an important tool for the advisory community, trade bodies and others in helping scheme sponsors understand the value and potential of the asset class.

These are complex challenges which need a coordinated approach from the industry and government to solve, but we are confident that once the barriers start falling, defined contribution schemes will find the confidence to support venture and growth capital in the UK. Without this, too many companies across the country which have huge growth potential will be left without the fuel they need to scale up.

In the next 10 years, the assets under management of workplace defined contribution pension schemes is expected to reach £1trillion, more than double the current size. Therefore, we should be doing what we can to enable savers to access the potential that venture and venture growth capital investment could bring to their portfolios. In doing so, we will also be contributing to the broader financial impact that venture and venture growth capital strategies can have on the economy.