Getting the best outcome for pension savings

 Reforms announced by the Chancellor this week at Mansion house are aimed at giving those who are saving for their pensions a better, fairer deal.

• Britain should be the best and most innovative financial centre in the world.  in the world. The steps the government is now taking will set us up for another century of success – as the global capital for capital.
• That is why we are reforming the pensions market – to increase retirement income by over a £1,000 a year over the course of a career and unlock up to £75 billion of additional investment from defined contribution and local government pensions.  

Our plans will:

• Reform the pensions market, boosting outcomes for savers and increasing the availability of funding for high-growth companies.
• Help companies grow and list in the UK.
• Enable us to grasp the opportunities of the future by reforming and simplifying our regulatory rulebook.

These reforms will deliver on the Prime Minister’s pledge to grow the economy. While we are taking the long-term decisions that will benefit savers up and down the country – Labour will make it all worse with their plans for £28 billion a year of unfunded borrowing, meaning higher inflation, higher interest rates and lower growth. 

Our financial services and pensions industry is world-leading, but we need to ensure we are harnessing its investment potential:

• The UK’s financial services industry employs 2.5 million people and contributes over £100 billion in tax revenue a year – enough to fund half the NHS.
• The UK has the largest pension market in Europe, worth over £2.5 trillion. But in the UK, we invest less in high growth companies than our international comparators, for example schemes in Australia.
• Over the past ten years Automatic Enrolment has helped an extra ten million people save for their futures, but how this money is invested is limiting returns for savers. For example, Australian Defined Contribution schemes invest ten times more in private markets as a proportion of their total pension assets invested than UK schemes, reaping the rewards that UK savers are missing out on.

Our Mansion House Reforms will be guided by three ‘golden rules’:

1. We will seek to drive better outcomes for pension savers.
2. We will always prioritise the long-term integrity of the gilt markets.
3. We must ensure our decisions strengthen the UK’s competitive position as a leading financial centre.

Our pensions reforms will unlock investment and boost retirement income: For Defined Contribution pension savings, the reforms include: 

• An industry-led ‘Mansion House Compact’ – an agreement between nine of the UK’s largest workplace pension schemes, committing them to the objective of allocating five per cent of assets in their default funds to unlisted equities by 2030. This represents £400 billion in assets and around two thirds of the UK’s Defined Contribution workplace pensions market.
• More effective investments by defined contribution pension schemes will also increase savers pension pots by up to 12 per cent, or as much as £16,000, over the course of a career for an average earner.
• A programme of consolidation for Defined Contribution Funds. This will ensure that funds are able to maintain a diverse portfolio of debt and equity to deliver the best returns for savers and encourage new ‘Collective DC’ funds. Pension schemes which are not achieving the best possible outcome for their members will face being wound up by the PRA.
• A new Value for Money framework which will make clear that investment decisions made by pension firms should be based on overall long-term returns and not simply costs. Pension schemes which are not achieving the best possible outcome for their members will be wound up into larger, better performing schemes.
• Ensuring all schemes have the opportunity to invest quickly and effectively in unlisted high-growth companies. We will do this by exploring the demand for government to play a greater role in establishing investment vehicles, building on the skills and expertise of the British Business Bank.
• Unlocking assets in the Local Government Pension Schemes through a consultation on accelerating pooling of Local Government Pension Schemes. This will be launched with the aim to double existing investments in private equity to ten per cent, potentially unlocking £25 billion by 2030. For Defined Benefit pension schemes a new permanent superfund regime will deliver better outcomes for savers.

The Government will also launch a call for evidence to explore how we can overcome cultural barriers and ensure a focus on good saver outcomes. We will also launch a call for evidence to assess the role of the Pension Protection Fund and Defined Benefit schemes play in productive investment.

The government will repealing previous EU legislation that required financial businesses to separate the cost of investment research from trading expenditures – improving the UK’s competitiveness. This forms part of our response to the Investment Research Review, an independent review into investment research and its contribution to the attractiveness of the UK as a destination to list.

We are also reforming our listings regime to make the UK a more attractive destination for high growth companies to list:

The UK has the largest stock market in Europe and one of the deepest in the world, attracting the most IPOs globally outside the US. We will build on this strong position, so even more of the most exciting companies in the world grow and list in the UK. We will do this by:

Helping small and high growth companies to get the right valuations and attract more investment. The government and FCA are taking forward the recommendations from an independent review into investment research in the UK in order to aid this aim.

• Putting the UK at the very forefront of innovative capital with a new type of trading venue that that improves companies access to capital before they publicly list. We are developing a new type of trading venue that will act as a bridge between private and public markets, supporting companies to list and grow in the UK. A trial of this new venue will be up and running before the end of next year.
• Publishing legislation to ensure that we are incentivising companies to list in the UK. The government published final draft legislation on prospectus reforms. This will create a simpler and more effective regime than its EU predecessor, giving companies more flexibility to raise even larger sums from investors, quickly, and ensuring those investors have access to better-quality information.