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Budget 2001 Wednesday, 7 March, 2001, 15:59 GMT
Brown shakes up pension fund rules
Gordon Brown and pensioners
Chancellor Gordon Brown is to make it easier for life insurers and pension funds to invest in start-up businesses - a move which could make pension funds more profitable.

The announcement in Wednesday's Budget is in line with the recommendations contained in the Myners' report, which on Tuesday said that timid pension fund chiefs meant that pension funds are not as profitable as they could be.

"We will abolish the minimum funding requirement; through tax and regulatory reform to make it easier for life insurers and pension funds to invest in venture capital," he said.

"I support the challenge to the industry Mr Myners has laid down and his proposal that we should be prepared to legislate as necessary to achieve the improvements he prescribes," he added.

The Chancellor agreed with the Myners' report that pension fund trustees should play a stronger role, while "there should be a clearer duty on fund managers to promote beneficiaries' interest".

Timid

The Myners' report called for a shake-up of the industry, which has more than 800bn under management.

Holders of pension plans were being failed by the timidity of pension fund managers, the report said on Tuesday.

A culture that "seeks to avoid conflict" left pension fund managers unwilling to criticise poor profitability in firms they have invested in, the inquiry found.

Yet the fund managers are "highly paid to make such judgements", the investigation's final report said.

"The review is particularly concerned by the value lost to institutional investors through the reluctance of fund managers to engage actively with companies in which they have holdings, even where they have strong reservations about strategy."

Challenge

By abolishing the Minimum Funding requirement - a controversial measure introduced following the Maxwell pension scandal - pension funds will no longer be restricted to investing in safe investments such as gilts.

Some argue that the abolition could hurt funds which invest heavily in gilts.

The Chancellor was widely anticipated to accept the Myners' report recommendations, but the move is nonetheless seen as setting a challenge for the pension fund industry.

"The Chancellor is effectively challenging the pension funds to invest more widely in riskier areas, as well as giving the funds a chance to benefit from the high growth possibilities," PriceWaterhouse Coopers's tax expert John Whiting said.

"However this is not without risks, so no doubt there will be extra reporting requirements to give reassurance to those investing in pension funds," he added.

The move should also have the added benefit of making more money available for start- up businesses who struggle to get venture capital.

Daniel Godfrey, director general of the Association of Investment Trusts, added his support to the Myners' report and the Chancellor's endorsement of the report.

"We had hoped that it would take a radical look at the industry and we are not disappointed. Naturally we're delighted that he [Gordon Brown] pointed out the attractions of investment trusts and we believe that the model of the independent investment trust Board has many pointers for the role of pension fund trustees," he said.


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06 Mar 01 | Business
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