PRESS RELEASE: MAY 2012 The head of a major funding organisation is urging the government to restore tax breaks for pension funds investing in Real Estate Investment Trusts (REITs).
Phil Shanks, founder of social housing fund provider SAF Housing, wants ministers to encourage investment in REITs as part of a broader economic recovery strategy. He believes greater investment by pension funds could play a key role in easing the credit shortage and stimulating growth.
Phil said: “The government is looking for new ways to meet the affordable housing challenge. One of those is the residential REIT. Since the tax structure surrounding this is under consultation it makes sense to use it as an opportunity to stimulate investment by restoring the tax credit for pension funds investing in REITS.
“The government could look at targeting this benefit to work in conjunction with other initiatives. If the response from the investment community is what I’d expect, this measure would more than pay for itself. Just as importantly, the government would be able to focus other investment sectors where similar benefits could be restored for investors in areas that drive growth.”
With interest rates on borrowing at a record low, Phil believes the time is ripe for the government to raise a 100-year bond.
He said: “The size of that bond should equate to the black hole in the pension funds, both public sector and private sector. The government could then restore the tax credit on dividends. The logic is not complicated: the purpose of pension funds is to invest money to obtain a return for their members. In an inflationary environment that discourages holding cash, pension funds are well motivated to invest. Additionally, the bond itself would have to be paid for and this could only be done by a fund that stands to benefit.”
The 100-year bond initiative would be a more effective way of quantitative easing because it would be based on onward investment rather than balance sheet repair.
Phil continued: “This scheme would push money out into the real economy, driving big business and providing funds for banks to lend. We have given banks access to cheap money and they have used it to repair themselves. If pension funds provide finance they will expect returns consistent with onward investment, encouraging banks to lend to the small medium sector.
“More than that, though, this would provide us with an opportunity to look more objectively at proposals for the future. The best time to look at retirement age and contribution levels is when we have restored our pension funds. Restoring our pension funds might just be the way of restoring our economy.”