Rachel Reeves must accelerate efforts to merge smaller pension funds and allow the country’s retirement cash to flow into British companies, the chief executive of Schroders has said.
Speaking at the City A.M. Summit at Aquis this week, Peter Harrison, the outgoing chief of the FTSE 100 asset management firm, said the fragmented nature of the UK’s pensions market was stymieing investment and Westminster should step in to force “consolidation” of smaller retirement schemes.
The comments come as Reeves and Keir Starmer hunt for ways to unlock more capital from pension funds and divert dormant retirement cash into the economy.
They will not be the first occupants of Downing Street to try and achieve the task. Speaking ahead of his budget in March, the former Chancellor Jeremy Hunt threatened pension money managers with “further action” unless they ramped up their investment in UK equities.
Under plans introduced by Hunt, struggling pension schemes would be blocked from taking on new members and may be absorbed by the industry’s lifeboat fund, the Pension Protection Fund.
It is unclear whether Reeves and Starmer plan to press ahead with the scheme. However, Harrison said the new government should take steps to merge more schemes.
“I do think you’re gonna have to force consolidation,” The Schroders boss added. “You can’t work with 30,000 master trusts, you can’t work with 8[6] local government pension schemes.
“The fragmentation that exists in our system is part of a massive cost overhead, which is far too great. There’s a long list of things we need to do, but we’ve got to get that consolidation.”
The previous government mooted merging more of the country’s sprawling local government pensions schemes, which currently manage £425bn across 86 separate funds. While it is unclear whether Labour will press ahead with the plans, it pledged to conduct a review of the pensions landscape in its manifesto and floated the prospect of forced consolidation.
“We will adopt reforms to ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC,” the party has said.