Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government how they intend to ensure that investors in long term asset funds are protected against the losses, gating and trading suspensions which have arisen when open-ended funds cannot sell their investments to meet redemptions.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The Long-Term Asset Fund (LTAF) was devised to bridge the gap between closed-ended funds and fully open-ended daily-dealing funds and fulfil the need for investment products that can provide funding for long-term projects while offering investors potential for higher returns in exchange for limited liquidity.
The FCA have designed robust governance requirements for the LTAF, so investors who understand the risks of investing in long‑term less liquid assets are able to invest with confidence. Where a firm markets an LTAF to a retail investor, the firm must provide appropriate risk warnings and conduct an appropriateness assessment.
The international Financial Stability Board (FSB) recognises that open-ended funds that invest in less liquid or illiquid assets while allowing investors quick and frequent access to their money, risk being unable to sell investments quickly enough to meet large investor redemptions. In 2023 the FSB published recommendations to address these vulnerabilities in open-ended funds. The FSB’s recommendations include assessing the appropriateness of redemption terms for open-ended funds holding less liquid and illiquid assets, which was a key consideration in the design of the LTAF.
The Government is supportive of the FSB’s work on open-ended funds and the regulators are considering the implementation of the recommendations.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the suitability of (1) closed-ended and (2) open-ended investment companies for holding illiquid long-term real assets.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The Long-Term Asset Fund (LTAF) was devised to bridge the gap between closed-ended funds and fully open-ended daily-dealing funds and fulfil the need for investment products that can provide funding for long-term projects while offering investors potential for higher returns in exchange for limited liquidity.
The FCA have designed robust governance requirements for the LTAF, so investors who understand the risks of investing in long‑term less liquid assets are able to invest with confidence. Where a firm markets an LTAF to a retail investor, the firm must provide appropriate risk warnings and conduct an appropriateness assessment.
The international Financial Stability Board (FSB) recognises that open-ended funds that invest in less liquid or illiquid assets while allowing investors quick and frequent access to their money, risk being unable to sell investments quickly enough to meet large investor redemptions. In 2023 the FSB published recommendations to address these vulnerabilities in open-ended funds. The FSB’s recommendations include assessing the appropriateness of redemption terms for open-ended funds holding less liquid and illiquid assets, which was a key consideration in the design of the LTAF.
The Government is supportive of the FSB’s work on open-ended funds and the regulators are considering the implementation of the recommendations.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what plans they have to protect UK-listed closed-ended funds against cost-disclosure regulations which deter investment.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
In 2024, the Government legislated to enable the Financial Conduct Authority (FCA) to reform the UK’s retail disclosure regime to ensure consumers have access to the most useful information – including on risks, costs and performance – to support their investment decisions.
The FCA continue to engage with industry and will publish their final rules later this year.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the impact of pension fund buyouts on the volume of gilt sales in the government bond market.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The volume of government gilt issuance is determined by the Office for Budget Responsibility forecast for cash borrowing, adjusted for redeeming gilts, any unanticipated under/over-financing in the previous financial year, and financing via other sources (such as National Savings & Investments).
Underlying demand for the UK’s debt remains robust, with a well-diversified investor base and the Debt Management Office’s gilt sales operations continue to see strong demand.
Insurance companies have fewer incentives to invest in gilts than Defined Benefit schemes, so insurance buyouts are expected to reduce demand from the sector over the longer term. This is well understood by the market. Gilts continue to offer benefits to insurance companies, though, and there are limits to the pace at which insurers can buy out pension funds.
Historically, we have seen changes in demand patterns from across the investor base. Overall demand has however remained resilient throughout these periods of changing investor patterns as a result of our policy of supporting a strong and diversified market. More generally, gilt yields are determined by a wide range of both domestic and international factors.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the impact that (1) regulatory risk aversion, and (2) the encouragement of pension fund buyouts and the accompanying sales of holdings of UK Government bonds once buyout is completed, have had on the availability and cost of start-up and scale-up capital in the UK.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The government keeps the availability and cost of start-up and scale-up capital under close review. The government is taking action to ensure that UK businesses can access the capital they need to grow, and that the financial system supports innovation and economic growth.
The Chancellor’s remit letters put the Financial Conduct Authority and the Prudential Regulation Authority firmly at the heart of the Growth Mission, challenging them to go further to support growth and competitiveness. The letters made clear that there is an opportunity for more responsible and informed risk taking across the economy, and the government will support the regulators to enable this, including by facilitating innovation across the financial services sector.
Similarly, following a request in the Chancellor’s November 2024 remit letter to the Bank of England’s Financial Policy Committee, the BoE is working with HM Treasury and other authorities to assess how the financial system can better support sustainable economic growth, including by improving access to finance for high-potential small and medium-sized enterprises and for long-term investment.
The British Business Bank plays a key role in supporting start-ups and scale-ups, working with over 200 delivery partners (including banks and venture capital firms) to channel funding to SMEs that might otherwise struggle to access finance. Following the June Spending Review, the Bank’s financial capacity has increased to £25.6 billion, including the new £4 billion Industrial Strategy Growth Capital initiative, which will help address the scale-up financing gap for priority sectors.
The government is also working with private sector investors to enable more institutional investment into productive UK assets. This includes initiatives like the Pensions Investment Review and the Mansion House Accord. The British Business Bank is also supporting this effort through programmes such as the British Growth Partnership. Together, these actions will help address funding gaps in the market, including the availability and cost of start-up and scale-up capital.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the impact of the sale of Government bonds by insurance companies who have taken over pension fund assets in exchange for annuities on (1) growth and (2) Government bond yields.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The volume of government gilt issuance is determined by the Office for Budget Responsibility forecast for cash borrowing, adjusted for redeeming gilts, any unanticipated under/over-financing in the previous financial year, and financing via other sources (such as National Savings & Investments).
Underlying demand for the UK’s debt remains robust, with a well-diversified investor base and the Debt Management Office’s gilt sales operations continue to see strong demand.
Insurance companies have fewer incentives to invest in gilts than Defined Benefit schemes, so insurance buyouts are expected to reduce demand from the sector over the longer term. This is well understood by the market. Gilts continue to offer benefits to insurance companies, though, and there are limits to the pace at which insurers can buy out pension funds.
Historically, we have seen changes in demand patterns from across the investor base. Overall demand has however remained resilient throughout these periods of changing investor patterns as a result of our policy of supporting a strong and diversified market. More generally, gilt yields are determined by a wide range of both domestic and international factors.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of (1) the potential use of UK-listed closed-ended investment companies in order to fulfil the Mansion House pension fund commitments, and (2) the risks to pension scheme members of using open-ended long-term asset funds to hold illiquid long-term assets.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The Mansion House Accord is an industry-led agreement and information about the assets in scope is available on the websites of Pensions UK (formerly the PLSA) and the Association of British Insurers (ABI).
The Long-Term Asset Fund (LTAF) was introduced by the Financial Conduct Authority (FCA). The structure was designed to fulfil the need for investment products that can provide funding for long-term projects, such as venture capital, private equity and debt, real estate and infrastructure while offering investors the potential for higher returns in exchange for limited liquidity.
Pension schemes are subject to liquidity requirements as set out in law and in Financial Conduct Authority (FCA) rules and are subject to the oversight of the FCA and The Pensions Regulator (TPR).
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the potential demand from defined benefit pension funds and insurers for new issuance of Government bonds aiming to match pension liabilities or annuities and linked to (1) consumer price index, (2) limited price indexation and (3) life expectancy in the United Kingdom.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The Government consults primary dealers and gilt investors regularly to understand their needs, taking that feedback into account when designing the gilt financing programme. The gilt market is deep and liquid and enjoys strong demand from a well-diversified investor base.
Issuing new types of gilts risks fragmenting the market, which would not be consistent with the government’s debt management objective to minimise the long-term cost of financing. Long-dated and index-linked gilts are already very effective assets for defined benefit pension funds and insurers and allow them to hedge long-term liabilities. This is reflected by the high levels of demand for these products from those sectors.
The government keeps the introduction of new debt instruments under regular review. Any new instrument would need to meet value-for-money criteria, enjoy strong and sustained demand in the long term, and be consistent with wider fiscal objectives.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what discussions they have had with the Debt Management Office and the Bank of England about the impact of quantitative tightening gilt sales on insurance company sales of gilts following bulk annuity transactions.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The Government consults primary dealers and gilt investors regularly to understand their needs, taking that feedback into account when designing the gilt financing programme. The gilt market is deep and liquid and enjoys strong demand from a well-diversified investor base.
Historically, we have seen changes in demand patterns from across the investor base. Overall demand has however remained resilient throughout these periods of changing investor patterns as a result of our policy of supporting a strong and diversified market.
In carrying out quantitative tightening, the Bank of England is liaising with the Debt Management Office to ensure that its gilt sales minimise disruption to market functioning.
Asked by: Baroness Altmann (Non-affiliated - Life peer)
Question to the HM Treasury:
To ask His Majesty's Government what assessment they have made of the use of listed closed-ended investment companies by pension funds as a means for smaller schemes to invest in illiquid alternative assets such as energy, housing, infrastructure and small businesses.
Answered by Lord Livermore - Financial Secretary (HM Treasury)
The Final Report of the Pensions Investment Review sets out a vision for the defined contribution workplace market and the Local Government Pension Scheme with fewer, larger schemes that will use the benefits of scale to invest in productive assets and enhance outcomes for savers, as well as better support the economy as a whole.
Last month, 17 of the largest workplace pension providers signed the Mansion House Accord and voluntarily committed to invest at least 10 per cent of their defined contribution default funds in private markets by 2030, with half of that invested in UK private assets.
Collectively these 17 schemes manage around 90% of active pension savers’ savings. This is expected to unlock £50bn of additional private market investment by 2030. As providers work towards meeting these commitments, they will be investing more in private, illiquid assets.
Additionally, we are introducing minimum standards for Local Government Pension Scheme asset pools, embedding local investment as a priority and strengthening scheme governance to ensure it is fit for the future.