Chancellor Jeremy Hunt unveils long-awaited pension reform aimed at strengthening the UK's position as a leading financial centre. Photo: Stéphane Rousseau/PA
Jeremy Hunt has promised to increase the income of future retirees by £1,000 a year as part of post-Brexit reforms to support retirees and British businesses.
The chancellor made his first speech in mansion on Monday evening. make public plans to increase the income of savers by increasing the investment of pension funds in British companies.
The measures include a voluntary 'agreement' between the country's largest pension funds to invest 5% of their assets in start-ups and private equity, with the potential to raise up to £50bn in high-growth business investments by the end of the decade.
Aviva, Scottish Widows, L&G, Aegon, Phoenix, Nest and M&G have signed up to these plans, which together represent hundreds of billions of pounds of retirement savings and millions of contributors.
Mr. Hunt also proposed measures to accelerate the consolidation of small pension schemes into so-called “superfunds” that have the scale to take on more risks and generate potentially higher returns.
The Treasury will explore what role the pension industry's lifeboat can play in creating or supporting superfunds. Reforms will focus on incentives to consolidate existing pension baskets to create the scale needed to invest in high-growth companies and other illiquid assets.
The Treasury has calculated that the package could increase the size of the retirement basket for the average worker who starts saving at age 18 by 12 percent over their career. That's more than £1,000 a year of extra income after retirement.
2305 UK Pension Fund Allocation
The chancellor said: “British retirees should benefit from the success of British business. By unlocking the investment, we will increase retirement income by more than £1,000 a year for the average worker over their entire career.
“It also means increased investment in our most promising companies, driving growth in the UK.”
Mr Hunt sought to reassure markets that these changes will be “evolutionary, not revolutionary changes to our retirement market,” and said the shift would not affect the UK government bond market, which is heavily supported by pension funds.
He said: “We will always prioritize a strong and diversified gold market. It will be an evolutionary, not a revolutionary change in our pension market. Those who invest in our securities help finance vital public services, and any change must recognize the vital role they play.”
These reassuring words follow the turmoil in the bond market last September after investors reacted with alarm Prime Minister Liz Truss' mini-budget.
The chancellor said his “mansion reforms” were based on three rules: ensuring the best possible outcome for retirees; prioritizing a strong and diversified gilt market; and strengthening the UK's position as a leading financial center for creating wealth and funding public services.
The reforms are being carried out amid concerns about the low level of pension savings invested in UK assets relative to international peers, as well as fears that pensioners are missing out on higher returns.
something to encourage more companies to stay in the UK and list on the London Stock Exchange after a series of high-profile flight to the US.
In May, City Minister Andrew Griffith urged pension funds to adopt a “risk-taking culture” amid fears that a reluctance to invest in the stock market is holding back the economy.
Work and Pensions Minister Mel Stride said: “Our reforms will benefit to savers and the public – they will open up opportunities to invest in the UK's pioneering ventures, boost the economy and help a record number of people in this country save for retirement to reach the retirement age they want.”
David Postings, Chief Executive of UK Finance, said: “We applaud the plans announced by the Chancellor in his Mansion House speech and his continued commitment to building a strong and globally competitive financial services sector in the UK.”
“These reforms will help support economic growth and strengthen our capital markets, attracting more investment and making it easier for companies to grow and list here in the UK.”
Mr Hunt said the government is also pushing ahead with plans EU-era Mifid 2 rulebook.
Mifid rules force financial firms to separate investment research costs from trading costs. It was introduced by the EU and was intended to reduce conflicts of interest, but it is widely believed that it hurt capital markets due to the reduction in available research.
Mr Hunt said the changes “will make sure we we can finance quality better.” exploring new sectors in Silicon Valley.”
The reform package also includes proposals to accelerate the consolidation of the local government pension scheme into a superfund.
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