Global comparison of pension investment rules holds warning for Rachel Reeves
About 77 per cent of the 52 countries studied by Mercer impose some sort of restriction on how pension schemes can invest
It might be easy for pension schemes to feel sorry for themselves lately, with a barrage of new rules and regulations to consider.
But perhaps AOX can help in at least one regard: by letting them know they are not alone.
The UK government is far from the only one around the globe to get involved in how pensions are invested. In fact it’s quite common, as some research by Mercer has just shown.
Mercer studied 52 countries and found 77 per cent (40) of them impose some sort of investment restriction (we’re not considering in-house asset restrictions that limit investment in the employer sponsor and related parties).
If Rachel Reeves follows through on her threat to mandate a certain level of investment in UK assets, hers will not be the only government to take that approach.
Brazil imposes a 10 per cent cap on foreign investments, while Poland and South Africa mandate a 30 per cent and 45 per cent cap, respectively. Botswana places a 50 per cent cap on foreign equities.
By contrast the 5 per cent that some pension providers have agreed to invest in the UK as part of the Mansion House Compact seems relatively benevolent.
It is far more common that countries impose a restriction on risky assets.
Finland puts a cap of 65 per cent on equities - though this is going up to 85 per cent this year as part of reforms.
Spain caps real estate investment at 30 per cent. In fact restrictions on real estate investment are quite common and are used in Iceland, India, Indonesia, Japan, Namibia, Switzerland and Turkey among others.
While most governments impose rules based on risk, the UK is far from alone in discussing whether pensions should do more to help their national economy.
The Canadian government is exploring ways in which its pension funds can invest more in the Canadian economy, while Australia is also looking at “greater investment in [...] national priorities” by pensions.
Finland, as part of the reforms mentioned above, has had a public discussion about whether more funds should be invested to support the Finnish economy and fund startup companies.
But what’s the catch?
Mercer’s research found that the 12 countries that had no restrictions at all performed better in its global pension index, which ranks countries based on the adequacy, sustainability and integrity of their pension systems.
Nine of the 12 systems with no restrictions ranked among the top 12 countries in the index.
Perhaps something for Rachel Reeves to bear in mind.
