Transport boss Brian Souter raps pension funds '˜pessimism'

Transport boss Sir Brian Souter has hit out at the 'pessimism' of the pensions industry, claiming that a switch from investing in businesses to putting money into gilts and bonds has triggered an 'ever-increasing cycle of unaffordable funding'.

Sir Brian Souter. Picture: Michael Gillen

The chairman and co-founder of Perth-based bus and train operator Stagecoach claimed that as a result pension funds had also by extension shown a “lack of faith in investing in our youth”.

Souter said returns on investments in gilts were falling to the point where it was expected some would lose money, and that it was time to revisit the investment approach taken by many pensions schemes.

The multi-millionaire, who is the president of accountancy body Icas, made the comments in an article in the organisation’s CA magazine.

He stated: “You might expect our pension schemes to be investing heavily in businesses and growth for the future, but they’re not.

“There is growing acceptance that these fabulously large and important pots of defined benefit investment assets are, for some reason, not being efficiently invested in ways that encourage enterprise and employment.

“We have record levels of investment into pension schemes and we have amongst the best-funded pension arrangements in Europe, so why do we have an apparently ever-growing pensions black hole?”

Souter, who started his working life as a bus conductor, said his father had “entrusted his pensions savings with me” when he was setting up Stagecoach.

He said figures from the Pension Protection Fund showed that over the last decade pension schemes had largely “switched from investing in businesses (through equities and a wide range of corporate bonds) to investing instead much, much more in UK government gilts and a narrow range of similar bonds”.

In 2006 a typical UK pension scheme invested more than 60 per cent in equities and less than 30 per cent in gilts and bonds - but Souter said that had now reversed so the typical scheme holds less than 30 per cent in equities and more than 50 per cent in government gilts and bonds.

“I was really surprised but also disappointed at the level of pessimism shown by the pension industry both about the future prospects for business and its lack of faith in investing in our youth, our next generation of business people and entrepreneurs,” he said. “A real concern is that this lack of belief is creating a vicious circle of poor confidence with low aspiration that seems to have convinced nearly everyone that the pensions of the past are just not affordable for the next generation.”

Such is the situation that Souter claimed “baby boomers may find themselves being accused of pulling up the drawbridge, denying the young access to the good pensions they devised for themselves”.