Hm Treasury
- Chancellor to outline reforms to boost pensions and increase investment in British businesses
- the Mansion House Reforms could unlock an additional 75 billion for high growth businesses, while reforms to defined contribution pension schemes will increase a typical earners pension pot by 12% over the course of a career
- comprehensive reforms will increase pension pots by as much as 16,000
The reforms will also unlock up to 75 billion of additional investment from defined contribution and local government pensions, supporting the Prime Ministers priority of growing the economy, and delivering tangible benefits to pensions savers.
The United Kingdom has the largest pension market in Europe, worth over 2.5 trillion. Over the past ten years Automatic Enrolment has helped an extra ten million people save for their futures, with115 billion saved in 2021, but how this money is invested is limiting returns for savers. Comparable Australian schemes invest ten times more in private markets than UK schemes, reaping the rewards that UK savers are missing out on.
To level the playing field, the Chancellor and the Lord Mayor have supported an agreement between nine of the UKs largest Defined Contribution pension providers, committing them to the objective of allocating 5% of assetsin their default funds to unlisted equities by 2030. These providers represent over 400 billion in assets and the majority of the UKs Defined Contribution workplace pensions market.
This could unlock up to 50 billion of investment in high growth companies by 2030 if all UK Defined Contribution pension schemes follow suit.
More effective investments by defined contribution pension schemes will also increase savers pension pots by up to 12%, or as much as 16,000 for an average earner.
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.
Secretary of State for Work and Pensions Mel Stride 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 Chancellors 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% 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 5-year period from being in a lowest performing scheme.
The Mansion House Reforms will be guided by the Chancellors 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 UKs position as a leading financial centre to create wealth and fund public services.
To ensure that the money unlocked by these reforms is invested quickly and effectively, the Chancellor has asked the British Business Bank to explore the case for government to play a greater role in establishing investment vehicles, drawing upon the BBBs skills and expertise.
This will complement the 250 million 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.
The government will also encourage the establishment of new Collective Defined Contribution funds which can invest more effectively by pooling assets as well as launch a call for evidence to explore how we can support pension trustees to improve their skills, overcome cultural barriers and realise the best outcomes for their pension schemes and subsequently their members.
Defined Benefit pensions
For the Local Government Pension Schemes a consultation will be launched on setting an ambition to double existing investments in private equity to 10%, which could unlock 25 billion 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 50 billion of assets.
To improve outcomes for savers in a highly fragmented market, with over 5,000 Defined Benefit Schemes, 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.
A new call for evidence will also launch tomorrow 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.
Capital Markets
The UK has the largest stock market in Europe and one of the deepest in the world the London Stock Exchange had the most Initial Public Offerings (IPOs) outside of the US in 2021.
A comprehensive set of reforms will help attract the fastest growing companies in the world to grow and list in the UK. Prospectuses will be simplified, another milestone of Lord Hills UK Listing Review, replacing the EUs outdated regime.
Firms prospectuses for investors will be easier to produce, more accessible and understandable, saving companies time and money and attracting more firms to do business in the UK.
Protectionist rules inherited from our time in the EU will be abolished. The Share Trading Obligation and Double Volume Cap have held back UK businesses and will be removed so firms can access the best and most liquid markets anywhere in the world.
The government has also accepted all of Rachel Kents Research Review published today, paving the way for a new Research Platform that will provide a one-stop-shop for firms looking for research experts. It also sets the path for potentially removing the unbundling rules an inherited EU law that requires brokers to charge a separate fee for research.
The Chancellor will set out plans to establish an entirely new kind of stock market that allows private companies to access capital markets without floating on a stock exchange. This Intermittent Trading Venue would be a world first and will help firms grow and boost the UK economy. It will be complemented by a move to make shares fully digital rather than written on paper, saving businesses time and money.
This builds on the Chancellors Edinburgh Reforms and Solvency II reforms which will unlock over 100 billion of productive investment from insurance firms across the UK over a decade.
Seizing the opportunities of the future
To ensure the continued success of the UKs world-leading financial services sector, firms must be ready to innovate faster, with regulators willing to support them as they do.
Following the Financial Services and Markets Act 2023 passing into law, the government has announced that it is commencing repeal of almost 100 pieces of unnecessary retained EU law for financial services, further simplifying the UKs regulatory rulebook.
The government launched an independent review into the future of payments - led by Joe Garner, former Chief Executive Officer of Nationwide Building Society - to help deliver the next generation of world class retail payments, including looking at mobile payments.
The government also welcomes a report suggesting ways to move to fully digital shares, scrapping outdated paper-based shares. This will make markets more efficient and modernize how people own shares.
Further information
- The Mansion House Compact members are: Aviva; Scottish Widows; L&G; Aegon; Phoenix; Nest; Smart Pension; M&G; Mercer.
- The package of reforms announced today could help increase pension pots for an average earner who starts saving at 18 by 12% over their career - over 1,000 more a year in retirement all whilst supporting UK economy, businesses, and employment.
- Analysis shows a difference in returns between schemes over a 5-year period of up to 46% in some cases. This means that a saver with a pot of 10,000 could have notionally lost 5,000 over a 5-year period from being in a lowest performing scheme.
Reaction to the Chancellors Mansion House Reforms
Jamie Dimon, Chairman & CEO, JPMorgan Chase said:
Great financial centers stay competitive by responding to the market and evolving through the kinds of important iterations that the Chancellor has announced. Its also good to see the U.K. preparing for the industries of tomorrow considering the great promise of life sciences and A.I. as cornerstones of the economy in the years to come.
Sir Jon Symonds CBE, Chair, GSK said:
I welcome these importa