Chancellor Rachel Reeves has launched a pensions review to increase defined contribution (DC) schemes’ investments in the UK economy, grow pension pots and tackle waste in the pensions system.
This new Pensions Bill, confirmed in the King’s Speech, aims to encourage defined contribution (DC) schemes to raise their domestic exposure by £8bn collectively.
As DC schemes are set to manage around £800bn in assets by the end of the decade, the government believes that even a 1% shift of assets into domestic investments could help grow the UK economy and build vital infrastructure.
Meanwhile, the government aims to increase pension savers’ pots by more than £11,000 through further consolidation of DC schemes and broader investment strategies to deliver higher returns.
The Pensions Bill also introduces a ‘value for money’ framework to promote better governance and higher returns for DC schemes.
This review will also examine ways to “unleash the full investment might” of the £360bn Local Government Pension Scheme (LGPS) and address the £2bn spent on fees.
Reeves said: “The review is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners..”
These initial plans are the first phase in reviewing the pensions landscape and will be led by pensions minister Emma Reynolds.
The Chancellor and the pensions minister will chair a roundtable with the pensions industry today to initiate industry engagement for the review.
Reynolds said: “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.”
So far, the pension industry has welcomed the government’s ambitions.
António Simões, group chief executive of Legal & General Group, said: “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.”
Andy Briggs, chief executive officer of Phoenix Group, added that this review, especially the focus on pension adequacy, is “vitally important” as only one in seven people in the UK are saving enough for a decent standard of living in retirement.
The next phase, starting later this year, will explore additional steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy.
Additionally, the Chancellor will chair the first Growth Mission Board on Tuesday, supporting the government’s aim to achieve the highest sustained growth in the G7.
New measures have already been announced to fix the planning system, create a new National Wealth Fund and overhaul the listings regime to boost UK stock exchanges.