Rachel Reeves has announced a major pensions review as the new government pushes forward with plans to unlock investment and boost economic growth.
The review will explore ways in which billions of pounds worth of assets held by pension funds could be directed to productive assets, helping to fuel growth across the country.
“The review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners,” Reeves said.
Her plans fall in step with those of Tory predecessor, Jeremy Hunt, who worked on a number of different schemes to get more capital invested into domestic assets.
The Treasury noted by the end of the decade, defined contribution schemes will be managing around £800bn in assets, representing a huge pool of capital that could be funnelled into high growth start-ups or crucial pieces of infrastructure.
“Even a one percentage point shift of assets into productive investments could mean £8bn of new productive investment,” the Treasury said.
The review will explore how to harness the £360bn Local Government Pensions Scheme (LGPS), which is the seventh largest pension scheme in the world.
Currently the LGPS is split across 87 different funds and spends £2bn per year on fees. The government said “pooling this money would enable the funds to invest in a wider range of UK assets”.
If insufficient progress has been made by March 2025, the government will consider mandating pooling.
The announcement garnered the support of a number of leading City figures..
“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,” Legal & General Group Chief Executive António Simões said.
CS Venkatakrishnan, boss of Barclays said: “Pensions reforms are critical to unlocking institutional investment in growth equity, and alongside a streamlining of listing requirements, will give a significant boost to UK capital markets and growth”.
Andrea Rossi, boss of M&G said a pensions review was “long overdue” while Miles Celic, chief executive of the TheCityUK, said it will be an “important mechanism” to help improve people’s retirement incomes and boost growth.
Michael Moore, chief executive of the BVCA, said he was “very encouraged” that the government had chosen to move “so quickly” on reviewing the pensions landscape.
Emma Reynolds, the first ever joint Treasury and Department for Work and Pensions Minister, will lead the review.
It will report in the next few months and consider further measures to support the Pensions Bill, which was included in Wednesday’s King’s Speech. The Bill laid out plans to introduce automatic consolidation of small pensions pots and value-for-money frameworks to improve governance.
By enabling greater investment in productive assessments, which generally earn a higher return, the plans could help boost pension pots for savers by over £11,000, the Treasury said.
The next phase of the review, starting later this year, will consider “further steps” to boost investment and improve pension outcomes. The review will consider retirement adequacy, which could see auto-enrolment contributions increased.
“With only one in seven people in the UK saving enough for a decent standard of living in retirement, we are happy to see that this review will expand to look at pension adequacy,” Andy Biggs, chief executive of Phoenix Group said.
“This is vitally important for people across the UK and we hope this will include a commitment to increasing auto-enrolment contributions,” he added.
The announcement is the latest a series of reforms to reinvigorate the British economy. Reeves has already announced major planning reforms and the launch of a new National Wealth Fund while Liz Kendall, the work and pensions secretary, has revealed plans to tackle economic inactivity.