Pension funds will be required to disclose how much of their savers’ contributions they invest in British assets as part of the Chancellor’s attempts to stimulate growth.
Defined-contribution schemes, which are used by most private sector employees, would have to state how much they allocate to domestic assets..
Jeremy Hunt wants to divest investment from primarily in overseas shares and other assets into domestic listed and unlisted companies.
The government’s auto enrolment rollout has driven a huge growth in the amount of investment entering UK pension funds, from less than £90 billion in 2012 to around £116 billion in 2022.
However, the Treasury says disclosure requirements for DC pension funds are currently inconsistent across the market and do not require a breakdown of UK investments, sometimes making it difficult for policymakers and savers to understand where this money is invested.
“By ensuring pension funds publicly disclose where they invest and the returns they offer, it will make it possible for employers and savers to compare schemes and make informed choices,” said the Treasury.
The Financial Conduct Authority is taking a cautious view of the proposal as it sees little evidence that consumers or markets are being adversely affected by current patterns of investment.
Pension schemes will be given until 2027 to disclose the information, together with costs and net investment returns.
They will be required to publicly compare their performance data against competitor schemes, including at least two schemes managing at least £10 billion in assets.
Schemes performing poorly for savers will not be allowed to take on new business from employers, with The Pensions Regulator (TPR) and Financial Conduct Authority (FCA) having a full range of intervention powers.
Mr Hunt said: “We have already started on a path to drive growth, unlock capital for our most promising companies and improve outcomes for savers — and these new rules mean employers and savers can see how their money is invested and how the returns compare to other schemes.
“British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses. These requirements will help focus minds on how to improve overall returns and outcomes for savers.”
Work and Pensions Secretary Mel Stride added: “The incredible success of automatic enrolment has opened up a huge opportunity to grow the economy, boost British businesses and fuel our futures. It has helped us transform the pensions landscape over the last decade.
“And our Value for Money framework will take this one step further, focusing pension managers on their number one priority – securing the best possible returns for savers – as well as providing a boost to the wider economy.”
The investment industry broadly welcomed moves to create greater transparency and encourage investment in British assets.
Julia Hoggett, CEO of the quoted London Stock Exchange company and chair of the Capital Markets Industry Taskforce, said: “Pension holders should know how much is being invested in equities in their home market. Investing in UK companies ultimately benefits those companies and the returns they are delivering, which supports the economy and the country in which pension holders live, to everyone’s benefit and in everyone’s interest.”
James Ashton, who is CEO of the Quoted Companies Alliance, said: “There is huge upside to aligning the UK’s financial assets with innovative homegrown ventures that could be tomorrow’s world beaters. We welcome these new disclosures and hope they are the first step to many UK pension funds discovering the numerous high-potential companies whose shares are traded on their doorstep.”
The new rules would be policed by the FCA and the Pension Regulator, the Treasury said.
Some pension schemes have signed up in principle to a government target for 5% of their assets to go to unlisted stocks.
The new rules do not apply to defined-benefit schemes, which are mostly closed to new members but still manage the bulk of the nation’s long-term savings.
Defined-contribution schemes manage about £300 billion of assets on behalf of millions of new investors encouraged to save by the pension auto-enrolment rules, while defined-benefit schemes manage £1.5 trillion.
