Chancellor Rachel Reeves has launched the first phase of a landmark pensions review just days after the pension schemes bill made a surprise appearance in the King’s speech.
The new government said changes to pensions investment policy could unlock £8 billion pounds of investment in the UK economy from defined contribution (DC) schemes alone. Changes could also boost DC pension pots by more than £11,000.
The pensions review, launched on Saturday 20 July, 2024, is the first phase in examining the pensions landscape and will focus on investment.
The review will be led by Emma Reynolds, minister for pensions, who also holds the newly created role of joint treasury and department for work and pensions minister.
Assess retirement adequacy
The second phase of the review will start later this year to assess retirement adequacy and examine ways to improve pension outcomes and increase investment in UK markets.
Reeves and Reynolds will chair a roundtable with the pensions industry to begin intensive industry engagement for the review today (Monday 22 July, 2024).
Jim McMahon, minister at the department of housing, communities and local government will work closely with the review team to determine how to unlock the investment potential of the £360 billion local government pensions scheme and how to better manage the £2 billion currently spent on fees.
The review was unveiled ahead of the meeting of the first growth mission board on Tuesday 23 July, 2024, which Reeves will chair. The board will drive the government’s work to achieve the highest sustained growth in the G7. New measures have already been announced to change the planning system, create a new national wealth fund and overhaul the listings regime to boost UK stock exchanges.
‘Big bang of reforms’
Reeves said: “The [pensions] 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. That is why I am determined to fix the foundations of our economy so we can rebuild Britain and improve people’s lives.”
Deputy prime minister Angela Rayner said: “After putting in years of hard graft serving their communities, the very least our frontline workers deserve – millions of whom are low paid, millions of whom are women – is dignity and security in retirement.
“That’s why we want to make sure their hard-earned money works harder for them so we ensure they receive the pensions they have earned, while unlocking growth across our economy.”
Reynolds said: “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 focus on identifying any further actions to drive investment that could be taken forward in the pension schemes bill before then exploring long-term challenges to ensure our pensions system is fit for the future.”
Untapped potential in £2tr industry
Reynolds continued: “There is so much untapped potential in our pensions markets, with an industry worth around £2 trillion. The measures we have already set out in our pension schemes bill will help drive higher investment and a better deal for our future pensioners.”
Legal & General Group chief executive António Simões said that as the UK’s largest manager of money for pension clients, his firm welcomed the ambition set out in the review.
“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 DC savers access to high growth private market sectors, we look forward to continuing to work closely with the 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.”
BVCA chief executive Michael Moore said he was “very encouraged” that the pensions review has been brought forward so quickly.
He said: “The chancellor has a real opportunity to deliver economic growth by facilitating increased investment in UK businesses to the benefit of returns to pension savers as well as the wider economy.
“Legislative and policy changes, including further consolidation of pension schemes to increase pension schemes’ ability to deploy capital into UK private capital funds are vital, as is greater industry partnership.”
Moore said: “If the government is ambitious and considers a wide range of options in this review we are optimistic that this will deliver the clear roadmap we have called for, building on the work of the BVCA’s pensions and private capital expert panel.”
Early priority
Emma Douglas, Aviva director of workplace savings and retirement, also welcomed the government’s determination to undertake a pensions review as an early priority.
“We fully support the government’s ambition to get pension funds invested in a way that both supports UK growth and improves outcomes for savers. We see this as an important next step and look forward to working with the government and industry on the review.”
Association of British Insurers director general Hannah Gurga called the review an important opportunity to provide much needed long-term strategy for the significant role the UK pensions sector plays in investment and economic growth.
She welcomed the holistic approach that puts the interests of savers hand in hand with boosting investment in the UK.
“Good outcomes for savers and providing stability must ultimately be at the heart of the reforms and we look forward to working with the government to achieve this,” Gurga said.
Increase auto-enrolment contributions
Phoenix Group CEO Andy Briggs said: “Phoenix Group has committed to allocate 5 percent of assets in our default funds to unlisted equities by 2030 which will allow UK savers to invest in a more diversified portfolio. Our key priority is to deliver good outcomes for our customers and we are confident that Phoenix Group could invest up to £40 billion to support the economic growth agenda while keeping policyholder protection at its core.”
Briggs said that with only one in seven people in the UK saving enough for a decent standard of living in retirement, his group are happy to see that this review will expand to look at pension adequacy.
“This is vitally important for people across the UK and we hope this will include a commitment to increasing auto-enrolment contributions,” he added.
He also said that DC schemes will be managing around £800 billion in assets by the end of the decade and that the review will explore ways to increase their investment into productive assets.
“Even a 1 percentage point shift of assets into productive investments could mean £8 billion of new productive investment to grow the economy and build vital infrastructure by the end of the decade.
“This would also help savers using these schemes build up better retirement pots as productive assets are more likely to provide higher returns. Immediate action has already been taken to boost retirement savings through the pensions bill, which introduces a value for money framework to promote better governance and achieve higher returns – boosting the pension pot of an average earner who saves over their lifetime in a defined contribution scheme by over £11,000.”
Barclays CEO C. S. Venkatakrishnan 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. Building institutional demand is also an important signal in encouraging private share ownership.”
