The new Labour chancellor Rachel Reeves has initiated a comprehensive review of the UK pension system aimed at boosting investment, increasing pension pot sizes and addressing inefficiencies within the sector.
Under plans unveiled today (July 22), billions of pounds of investment could be unlocked in the UK economy from defined contribution schemes alone, and pension pots for savers in defined contribution schemes could be boosted by over £11,000.
This reform will unfold in two stages, targeting both immediate and long-term improvements in pension management.
The first stage, spearheaded by pensions minister Emma Reynolds, will focus on promoting productive investments through scheme consolidation and the encouragement of broader investment strategies.
This phase seeks to enhance the current pension landscape by ensuring funds are allocated to areas that yield higher returns.
The second stage, scheduled for later this year, will concentrate on improving pension outcomes and fostering increased investment in UK markets.
This phase will explore ways to maximise the returns for pensioners and bolster the UK economy.
During the election campaign, Labour committed to a thorough evaluation of the UK pensions framework. Reeves and Reynolds will now convene a roundtable with key stakeholders today to spark industry engagement.
Reeves emphasised the urgency of the review, stating, “Despite a very challenging inheritance, this new government is getting on with the job of delivering our mandate to get the economy growing so we can make every part of our country better off.
“The review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners. There is no time to waste.”
The government projections suggest that defined contribution schemes will manage approximately £800bn in assets by the end of the decade.
The review aims to channel more of these assets into the economy – even a 1% shift could potentially result in £8bn of new investments to spur growth and infrastructure development.
Reynolds highlighted the dual focus of the review, noting, “As the first ever joint Treasury and DWP minister, I am uniquely placed to tackle the twin challenges of productive investment and retirement outcomes.
“Over the next few months, the review will identify actions to drive investment and explore long-term challenges to ensure our pensions system is fit for the future.”
The announcement follows the recent unveiling of the Pension Schemes Bill in the King’s Speech. The Bill includes measures such as scrutinising underperforming default funds, consolidating small pension pots and requiring occupational pension schemes to offer retirement income solutions.
Reaction in the financial sector has been broadly positive.
Royal London Group chief executive Barry O’Dwyer said: “Pensions already play an important role in supporting UK economic growth, and the review announced by the Chancellor is a welcome opportunity to consider reforms that could strengthen this further.
“We are particularly pleased the review will focus on delivering better retirement outcomes for people, as this must always be the main priority of the pensions system.
“We are also encouraged that the next phase of the review will examine retirement adequacy, as creating a long-term plan for increasing contributions will have a major impact on improving retirement outcomes and helping to finance growth.”
Pension Protection Fund CEO Michelle Ostermann said: “Pension consolidation, and a fresh approach, can unlock billions in new UK growth-supporting investments and support the UK gilt market while securing the retirement incomes of many more pension members.
“We welcome the launch of the government’s review, marking the start of an important process, and look forward to playing our part.”
Legal & General group chief executive António Simões said: “As the UK’s largest manager of money for pension clients, we welcome the ambition set out by the government today.
“Driving pensions capital into areas such as science, technology and infrastructure can help support better returns for millions of retirement savers, as well as stimulate much needed long-term growth for the economy.
“Having recently launched our own fund offering defined contribution savers access to high growth private market sectors, we look forward to continuing to work closely with government on the next stages of reform to help unlock further funding routes to power UK businesses, communities and society.
“We also strongly welcome the government’s intention to consider the adequacy of overall pension provision in the next stage of the review.”
In July’s cover feature, Money Marketing called for an in-depth review of the entire pensions landscape, suggesting that stability of a new, five-year parliamentary term should enable this.
