Pension power

Think tank: Onward

Author(s): Zachary Spiro

November 17, 2023

This report from UK think tank Onward explores why the UK pension system under-invests in the tech sector and what can be done to address this.

The UK has a chronic pension investment problem, leaving British innovators cash-strapped and preventing savers from cashing in on successful start-ups. Britons’ retirement savings make up a mere 10% of the UK venture capital pool, while pensions account for 72% in the USA. Compared with other nations, the UK’s fragmented, short-sighted pension industry invests fifteen times less in start-ups than Canada, nine times less than the USA, and four times less than Australia.

The UK’s pension industry isn’t working for savers or start-ups. The average British pension returns are a third lower than in the USA, Canada and Australia, meaning savers are losing tens of thousands of pounds. Fledgling science and technology firms in the UK face a £6 billion funding shortfall, with too many cutting-edge innovators and entrepreneurs moving abroad, listing on foreign stock exchanges or folding due to a lack of investment.

If the UK wants to realise its science and technology superpower – and ensure British innovation benefits British savers – it must resolve its pensions investment problem. Onward’s new paper, Pension Power, urges the Government to create a Science Superpower Fund to act as a vehicle for local Government and other smaller pension schemes to invest in UK science and technology firms via the British Business Bank. It also calls for the Chancellor to invest £3 billion a year to help pay for public pensions and double the Mansion House Compact’s ambition.

These proposals, among others, could close the UK’s scientific funding gap by unlocking £20 billion of investment every year. Generations of British savers would reap the rewards of successful UK companies, boosting their pension savings and supporting more comfortable retirements. If UK pension returns were as high as their US, Canadian or Australian equivalents, a typical saver with annual contributions of £1,600 per year over 35 years would have an additional £97,900 when they retired.