LCP has outlined proposals that could reshape the investment landscape for UK pensions, potentially unlocking $1.3tn in funds for climate-centric initiatives.
According to Environmental Finance, these proposals come at a crucial time, as regulatory constraints currently discourage UK defined benefit schemes from venturing into illiquid, growth-oriented assets. LCP’s recommendation seeks to alter this by fostering a greater appetite for risk among these pension schemes.
Central to LCP’s suggestions is the introduction of a ‘super levy’. This innovative approach would allow sponsors of well-funded schemes to voluntarily pay an additional levy to the Pension Protection Fund. This payment would be aimed at covering up to 100% of all member benefits, thereby providing schemes with the financial leeway to increase investments in growth sectors like climate solutions.
Moreover, LCP has put forth a total of five ‘climate policy asks’ in their report. One of the key proposals includes urging nations to establish robust national climate transition plans. These plans are intended to streamline the transition to a more sustainable and environmentally responsible investment framework across the board.
LCP partner and one of the report’s lead authors remarked, “Our recommendations could significantly alter the investment capabilities of UK pensions, redirecting substantial financial power towards combating climate change.” This statement underscores the transformative potential of the proposed regulatory changes.
The report also emphasises the need for a shift in regulatory frameworks to accommodate and encourage investments in sectors crucial for achieving net-zero targets. Such a shift would not only align with global climate goals but also potentially offer higher returns for pension funds in the long term.
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