Pension power ‘could help plug infrastructure gaps and boost jobs and economy’

Pension savings could help to plug gaps in the UK’s infrastructure and boost the recovery of the economy, a report suggests.

Legal & General said regions across the UK are calling out for investment in transport, homes and energy, to bring infrastructure up to where it needs to be to support society’s needs.

This regional activity would also help unleash the economic stimulation and employment opportunities that the UK desperately needs as it looks to recover and rebuild following the impact of Covid-19, it argued.

The infrastructure investment gap over the next 10 years could reach £1 trillion, according to Legal & General’s estimates.

But it argued that insurers could potentially help to plug some of the “mega gap”.

It estimates that between £150 billion and £190 billion could be invested in infrastructure by insurers and other providers.

Insurers could help fill the gap through pension risk transfer (PRT) schemes, it argued.

PRT happens when an insurer takes on a company’s defined benefit (DB) or final salary pension scheme, including assets, liabilities and risks, from trustees. It then commits to paying pensions as agreed.

The insurer then invests the pension scheme’s funds into assets that should deliver returns in the long term – so that it can pay out on its pension promises.

Legal & General said long-term infrastructure investments are often attractive to insurance companies because they can provide secure and steady cash flows for paying pensions.

It considered the current state of the pensions market and wider economic factors, to estimate how much of the infrastructure gap could be plugged by insurers.

The insurer also argued that the Government alone cannot support the many projects needed across the UK – particularly in a period where coronavirus has dramatically increased state spending and shifted priorities.

Legal & General entered the PRT market more than 30 years ago.

Across the business, it said its teams have already invested £26 billion pension savings in urban regeneration, clean and low-cost energy, housing and transport links.

The insurer said that low interest rates and people living for longer have helped the PRT market to grow in recent years, with a significant number of companies “de-risking” their final salary pension schemes.

The UK PRT market has de-risked more than £64 billion in the past two years alone, the report said.

Legal & General Group chief executive Nigel Wilson said: “In order to have a strong and competitive economy on the world stage, the UK needs to invest a significant sum into improving its infrastructure and levelling up all regions.

“Long term investors like Legal & General have an important role in delivering regeneration, housing, transport and renewable energy investment by harnessing the ‘power of pensions’.

“We believe this is an important way to make inclusive capitalism a reality, investing for good whilst securing pension payments for millions of people.”

Laura Mason, chief executive of Legal & General Retirement Institutional, said: “By working with other insurers, we can use pensions savings to help plug part of the UK’s £1 trillion infrastructure gap, secure customers’ pensions and encourage the economic recovery.”