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Chancellor Rachel Reeves has said she is “going for growth” with a shake-up of the pension market that will unlock tens of billions of pounds of investment in business and infrastructure.
The chancellor was warned by business leaders he must “work hard” to restore confidence in the UK as an investment destination after the Budget “piled up additional costs on companies”.
He will use his first Mansion House speech as Chancellor to announce plans to create it pension “Megafunds” that could result in around £80 billion to invest in business and infrastructure.
In the plans, reforms will be introduced through new Pension Next year’s Scheme Bill, integrates the defined contribution (DC) scheme and collects assets from 86 local governments pension scheme authority.
Megafunds will reflect the scheme in Australia and Canada, where pension the fund takes advantage of the size to invest in assets that have more growth potential, the Government said.
Here is a look at what has been said about plans to retire “megafunds” which was outlined in Ms. Reeves’ first Mansion House speech as Chancellor.
What happened to the Pension Scheme Bill plan?
Reforms will be introduced in the new Pension Schemes Bill next year, consolidating defined contribution (DC) plans and pooling assets from 86 local government pension plan authorities.
There are around 60 different multi-employer schemes, each investing money into one or more funds. The government will consult on setting minimum size requirements for the fund.
It has said the changes could unlock around £80 billion of investment for infrastructure projects and businesses, helping boost economic growth.
The fund will benefit from its size and leverage economies of scale, which could help expand the retirement pot of DC savers.
The government said its analysis showed that pension funds start to generate more productive investment levels once the size of assets under management reaches between £25 and £50 billion.
The scheme will mirror a similar set-up in Australia and Canada.
What is the experience of retirement megafunds abroad?
Jon Greer, head of pension policy at wealth manager Quilter, said: “However, while Canadians have very large pension schemes, they are also looking for ways to increase domestic investment.
“Currently, about 7% of Canada’s infrastructure investment schemes are domestic. This highlights the challenge of finding suitable domestic projects even with large funds.
Is bigger always better when it comes to retirement funds?
Sir Steve Webb, former Liberal Democrat pensions minister who is now a partner at LCP (Lane Clark & ​​Peacock) consultancy, said: “In the end it has to be a member. Big is not always beautiful. There are some very good small pension schemes in Britain.
“They are heavily subsidized by their employers, they offer very good pensions and it would be very unfortunate if something is undermined by the rule of raw size. It cannot be a rough cut-off point. It cannot be an assumption that big is always better.
Discussing opportunities for investment, Sir Steve told the PA news office there was “a whole raft of things that Britain needs more money invested in”.
But he said that the opportunity must be “investable”, adding: “Some of this is about the source side and making sure that there is a plan to invest in it. There is a lot of work that needs to be done in this space. There is a lot that needs to be done whether the public money can be used to use the money private.
Sir Steve said the key benchmark was: “Is this in the best interests of the members?”
Another potential risk could be that megafunds become “the same”, he said, adding: “When there are many to choose from, there is little competition.”
He added: “Smaller schemes can still invest in big things… big is not always the best.”
What is the idea of ​​raising a new pension fund in the UK?
Sir Steve pointed out that the plans for the pooling of local government pension funds had previously been established almost a decade ago “so the so-called megafunds already exist, only they are not big enough, they are not mega enough”.
He added: “It took a long time, this is not a new idea, evolution is not a revolution, and nothing is worse…
Megafunds must adhere to strict standards to ensure they deliver for savers, such as having to be authorized by the Financial Conduct Authority, the Government said.
What does the business say?
Businesses have highlighted cost pressures, following changes announced in the Budget, warning that jobs and pay rises will be cut.
A £26 billion increase in employers’ national insurance contributions announced in the Budget, from April.
Changes to agricultural inheritance tax relief have also raised concerns.
