(December 4, 2013) — Six major UK insurers—Prudential, Aviva, Legal & General, Standard Life, Friends Life, and Scottish Widows— have committed to spend £25 billion on infrastructure investment over the next five years.
The deal, brokered by Lord Deighton, the commercial secretary to the Treasury, and the Association of British Insurers, is at the heart of the forthcoming “National Infrastructure Plan”, designed by the UK government to deliver more than £375 billion of investment into energy, transport, flood, waste, and water schemes in the coming decades.
A previous attempt to get £20 billion of institutional investment in infrastructure over 10 years was something of a damp squib, with just £1 billion worth of pledges received under the umbrella of the Pension Infrastructure Platform (PIP).
In October 2012, pension funds run by defence group BAE Systems, telecoms giant BT, the Railways Pension Scheme, Strathclyde Pension Fund, and West Midlands Pension Fund kick-started the PIP.
By February 2013, that group had expanded to include the Pension Protection Fund, the London Pension Fund Authority, Lloyds TSB and one anonymous fund.
It had been hoped a further £1 billion will be raised over the coming years from smaller pension funds, but fundraising appears to have ground to a halt in recent months.
Henry Tapper, director at consultants First Actuarial, said in a blog that insurers were perhaps a better fit than pension funds due to the increasingly short-term nature of financial directors overseeing final salary pension funds.
The target of most financial directors is now to wind their scheme up as soon as possible,” he said. The flight path has killed long-term thinking, and try as consultants might to instil a love of the long-term investment market, the reality is that occupational schemes are no more buying into the future of our infrastructure than they are into the future of their defined benefit plans.”
The insurer deal comes just days after the UK successfully prevented Brussels from introducing requirements in the new Solvency II rules, which would have made it harder for insurance companies to invest in infrastructure and other alternative assets.
“Solvency II created a lot of uncertainty about long-term investment,” Nigel Wilson, chief executive of Legal & General, told the Financial Times. “The terms of the directive are now fixed so as to permit long-term infrastructure investment without excessively onerous capital requirements… This gives us the green light to accelerate the pace of infrastructure investment.”
A key part of the government’s announcement was the introduction of the “Infrastructure Pipeline”—a blueprint for the planned and potential UK infrastructure projects. This is designed to provide investors with more certainty, which was seen as a key stumbling block by many institutional stakeholders.
Of the 646 projects and programmes in the updated pipeline 291 are already under construction.
The government also revealed it plans to create a new court for infrastructure to avoid unnecessary delays in the planning process for major projects.
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