The Chancellor has outlined reforms that he claimed could unlock an additional £75bn for high growth businesses, while reforms to defined contribution pension schemes will increase a typical earner’s pension pot by 12 per cent over the course of a career.
Hunt said the “comprehensive reforms will increase pension pots by as much as £16,000.
The reforms will tap into up to £75bn of additional investment from defined contribution and local government pensions; Mr Hunt said the United Kingdom has the largest pension market in Europe, worth over £2.5 trillion, which has grown during the ten years since the introduction of automatic enrolment, with £115bn saved in 2021.
Unlocking savings
The government said how this is money is invested is limiting returns for savers and that comparable Australian schemes invest ten times more in private markets than UK schemes, reaping the rewards that UK savers are missing out on.
Thee Chancellor and the Lord Mayor have supported an agreement between nine of the UK’s largest defined contribution pension providers, committing them to the objective of allocating 5 per cent of assets in their default funds to unlisted equities by 2030. These providers represent over £400bn in assets and the majority of the UK’s Defined Contribution workplace pensions market.
This, the government claimed, could unlock £50bn of investment in high growth companies by 2030 if all UK defined contribution pension schemes follow suit.
Chancellor of the Exchequer Jeremy Hunt said: “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career.
“This also means more investment in our most promising companies, driving growth in the UK.”
Mel Stride, secretary of state for work and pensions said: “British workers should have the confidence that their pension savings are working as hard as they are.
“Our reforms will benefit savers and society – unlocking investment into pioneering UK businesses, growing the economy, and helping the record number of people in this country saving into a pension to achieve the retirement they want.”
“The Chancellor’s Mansion House reforms will also deliver better returns for savers through a new value for money framework which will make clear that investment decisions made by pension firms should be based on overall long-term returns and not simply costs. Pension schemes which are not achieving the best possible outcome for their members will be wound up into larger, better performing schemes.
“Analysis shows that over a five-year period there can be as much as 46 per cent difference between the best and worst performing pension schemes. This means that a saver with a pot of £10,000 could have notionally lost £5,000 over a five-year period from being in a lowest performing scheme.”
Golden rules
Stride added: “The Mansion House Reforms will be guided by the Chancellor’s three golden rules: to secure the best possible outcome for pension savers; to always prioritise a strong and diversified gilt market as we seek to deliver an evolutionary, rather than revolutionary, change in our pensions market; and to strengthen the UK’s position as a leading financial centre to create wealth and fund public services.”
The Chancellor has asked the British Business Bank to explore the case for government to play a greater role in establishing investment vehicles, this will “complement” the £250m of support that government has made available through the Long-term Investment for Technology and Science (LIFTS) initiative to incentivise new industry-led investment vehicles.
Defined Benefit pensions
For the Local Government Pension Schemes (LGPS) a consultation will be launched on setting an ambition to double existing investments in private equity to 10 per cent, which could unlock £25bn by 2030.
The consultation proposes a deadline of March 2025 for all Local Government Pension Scheme funds to transfer their assets into LGPS pools and setting a direction that each pool should exceed £50bn of assets.
The government will set out its plans on introducing a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new way of managing Defined Benefit liabilities while a call for evidence will also launch on the possible role of the Pension Protection Fund and the part defined benefit schemes could play in productive investment whilst securing members’ interests and protecting the sound functioning and effectiveness of the gilt market.
