Steven Cameron, Pensions Director at Aegon said: “The concept behind Keir Starmer’s proposed British Recovery Bond is sound, albeit arguably not completely new. In recent years there’s been a trend towards government encouraging long-term savings into specific parts of UK infrastructure or green initiatives. While the pandemic has led to many people suffering financially, for those lucky enough to keep earning, it has generated surplus savings sitting in cash, paying little of no interest. Channelling a chunk of that to invest in the UK’s post pandemic recovery makes sense and is likely to appeal to savers wanting to ‘do their bit’. The proposed Bond would be a Government-run savings account rather than an investment, offering security and likely paying an interest rate a little above what’s available currently in commercial cash savings vehicles. But with interest rates at an all-time low, and with the prospect of them going negative, the returns savers would receive would also be limited. For savers looking for a low-risk, government backed initiative the Recovery Bond may be attractive, particularly given the ‘patriotic dividend’ savers may feel from investing in the future of the country.
“The alternative would be to encourage the creation of investment vehicles which would commit specifically to investing in the UK’s economic recovery. These could be offered by existing pensions and investment companies, removing the need for the Government to stump up extra interest payments. Individuals could access these through stocks and shares ISAs or by selecting such a fund for their defined contribution pension. This approach would offer a wider range of risk and return options and provide more experienced investors with greater choice.
“The Government is already increasingly encouraging pension funds to invest, on behalf of their members, in ways that support economic recovery. This includes in infrastructure, ‘productive’ capital which has a particular focus on generating new growth and in the ‘green revolution’. There’s every chance we’ll see the Chancellor using his 3 March Budget to offer a broader range of investors further targeted incentives to invest in certain areas of the UK economy. And in places these might well resemble Starmer’s British Recovery Bond concept.”
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