UK Pension Funds Seen as Too Small to Boost Economic Growth
Chancellor Rachel Reeves Discusses Pension Reform Plans Aimed at Enhancing Investment
UK public sector pension funds lack the scale needed to deliver strong returns for British savers, according to Chancellor Rachel Reeves.
The government plans to consolidate the local government pension scheme, which manages £354bn in investments, into larger 'pension megafunds.' This initiative is part of significant pension reforms aimed at increasing investment in the UK.
Reeves cited Canada and Australia, where local government pensions are pooled into substantial funds capable of large global investments, as models for these changes.
The reform plans will be central to Reeves' Mansion House speech, occurring after criticism of increased employer National Insurance contributions in the Budget.
The proposal involves merging 86 council pension funds, representing 6.5 million pensions, into larger entities managed by professional fund managers.
These megafunds will be expected to set targets for local economic investment.
Additionally, the government plans to enforce a minimum size for defined contribution schemes, promoting consolidation among the 60 multi-employer schemes handling £800bn in investments.
Reeves asserts that more substantial pension funds could unlock £80bn for UK investments in sectors like energy infrastructure and tech start-ups.
However, critics warn that aligning pension goals with government investment objectives might expose savers to increased risks.
Tom Selby of AJ Bell emphasized that current systems prioritize maximizing member retirement income, potentially taking risks inconsistent with broader economic goals.
Critics also highlight potential challenges for large funds in finding suitable UK projects.
Jon Greer of Quilter pointed out that an abundance of capital chasing limited viable opportunities might push funds towards riskier investments.
The opposition will closely review the plans, especially the mandated investment directions.
The government plans to consolidate the local government pension scheme, which manages £354bn in investments, into larger 'pension megafunds.' This initiative is part of significant pension reforms aimed at increasing investment in the UK.
Reeves cited Canada and Australia, where local government pensions are pooled into substantial funds capable of large global investments, as models for these changes.
The reform plans will be central to Reeves' Mansion House speech, occurring after criticism of increased employer National Insurance contributions in the Budget.
The proposal involves merging 86 council pension funds, representing 6.5 million pensions, into larger entities managed by professional fund managers.
These megafunds will be expected to set targets for local economic investment.
Additionally, the government plans to enforce a minimum size for defined contribution schemes, promoting consolidation among the 60 multi-employer schemes handling £800bn in investments.
Reeves asserts that more substantial pension funds could unlock £80bn for UK investments in sectors like energy infrastructure and tech start-ups.
However, critics warn that aligning pension goals with government investment objectives might expose savers to increased risks.
Tom Selby of AJ Bell emphasized that current systems prioritize maximizing member retirement income, potentially taking risks inconsistent with broader economic goals.
Critics also highlight potential challenges for large funds in finding suitable UK projects.
Jon Greer of Quilter pointed out that an abundance of capital chasing limited viable opportunities might push funds towards riskier investments.
The opposition will closely review the plans, especially the mandated investment directions.
