In July this year the Chancellor, Jeremy Hunt, announced a package of reforms designed to boost pensions and increase investment in British businesses.
Known as the Mansion House reforms after the venue where the Chancellor delivered his speech, the plans aim to unlock up to £75bn of corporate investment and increase the pension pots of retirees by 12%, equivalent to £1,000 per year.
The UK economy is more than 15 years into a period of low economic growth, underpinned by stagnant growth in labour productivity. Several factors contribute but one area of broad agreement, according to the Resolution Foundation, is the country’s low investment rate.
Hunt’s announcements on pensions came with five reforms. Some consultations will be needed to hammer out the details but all final decisions will be made ahead of the Autumn Statement later this year, said Hunt.
The reforms will be guided by the Chancellor’s three golden rules: to secure the best possible outcome for pension savers, whilst prioritising a strong and diversified gilt market, and strengthening the UK’s position as a leading financial centre.
First, the largest defined contribution pension schemes, including Aviva, Nest and Aegon, have signed a ‘Mansion House Compact’ committing them to allocating at least 5% of their default funds to unlisted equities by 2030.
Second, the government will “facilitate” a programme of defined contribution consolidation “to ensure that funds are able to maintain a diverse portfolio of bonds, equity and unlisted assets and deliver the best possible return for savers”.
Third, ahead of the Autumn Statement, the government will explore whether it can establish investment vehicles via the British Business Bank.
Fourth, Hunt announced a “permanent superfund regulatory regime” for the 5,000 or so defined benefit schemes which operate under a different regulatory scheme.
Lastly, the government will open a consultation on doubling existing investment held by local government pension schemes (LGPS) in private equity to 10% which could unlock £25bn by 2030.
Hunt said his plans “could have a real and significant impact on people across the country.”
The proposals have been welcomed by some experts, but they also urged the government not to neglect small to medium businesses (SME’s) who account for 80% of the UK’s economy and should also benefit from easier access to capital funding.