Landmark pensions review part of Government’s mission to ‘boost growth and make every part of Britain better off’
Chancellor launches landmark review to boost investment, increase pension pots and tackle waste in the pensions system.
New Pensions Bill confirmed in King’s Speech could boost pension pots by over £11,000, with further consolidation and broader investment strategies to potentially deliver higher returns for pensions.
An investment shift in defined contribution schemes could deliver £8 billion of new productive investment into the UK economy.
Action will be taken to unleash the full investment might of the £360 billion Local Government Pension Scheme to make it an engine for UK growth.
The Chancellor Rachel Reeves has announced a landmark pensions review as part of the new Government’s mission to ‘boost growth and make every part of Britain better off’.
Under plans unveiled by the new Chancellor, billions of pounds of investment could be unlocked in the UK economy from defined contribution schemes alone and pension pots for savers in defined contribution schemes could be boosted by over £11,000.
The Review will also, working closely with the Minister of State at MHCLG Jim McMahon, look at how to unlock the investment potential of the £360 billion Local Government Pensions Scheme, which manages the savings of those working to deliver our vital local services, as well as how to tackle the £2 billion that is being spent on fees.
The announcement comes ahead of the first Growth Mission Board on Tuesday. This will be chaired by the Chancellor and drive the Government’s work to achieve the highest sustained growth in the G7. New measures have already been announced to fix the planning system, the creation of a new National Wealth Fund and the overhaul of the listings regime to boost UK stock exchanges.
The work announced today – focusing on investment – is the first phase in reviewing the pensions landscape and will be led by the first ever joint Treasury and Department for Work and Pensions Minister, Emma Reynolds (Minister for Pensions). The next phase of the review starting later this year will consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy.
The Chancellor and the Pensions Minister will chair a roundtable with the pensions industry on Monday to start intensive industry engagement for the Review.
Chancellor of the Exchequer Rachel Reeves said:
Despite a very challenging inheritance, this new Government is getting on with the job of delivering our mandate to get the economy growing so we can make every part of our country better off. The review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners. There is no time to waste. That is why I am determined to fix the foundations of our economy so we can rebuild Britain and improve people’s lives.
Deputy Prime Minister Angela Rayner said:
After putting in years of hard graft serving their communities, the very least our frontline workers deserve - millions of whom are low paid, millions of whom are women - is dignity and security in retirement. That’s why we want to make sure their hard-earned money works harder for them so we ensure they receive the pensions they have earned, whilst unlocking growth across our economy.
Pensions Minister Emma Reynolds said:
As the first ever joint Treasury and DWP Minister I am uniquely placed to tackle the twin challenges of productive investment and retirement outcomes. 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. There is so much untapped potential in our pensions markets, with an industry worth around £2 trillion. The measures we have already set out in our Pension Schemes Bill will help drive higher investment and a better deal for our future pensioners.
Legal & General Group Chief Executive António Simões said:
As the UK’s largest manager of money for pension clients, we welcome the ambition set out by the government today. 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. Having recently launched our own fund offering Defined Contribution savers access to high growth private market sectors, we look forward to continuing to work closely with government on the next stages of reform to help unlock further funding routes to power UK businesses, communities and society. We also strongly welcome the Government’s intention to consider the adequacy of overall pension provision in the next stage of the review.
BVCA Chief Executive Michael Moore said:
We are very encouraged that the Government has brought forward their Pensions Review so quickly. The Chancellor has a real opportunity to deliver economic growth by facilitating increased investment in UK businesses to the benefit of returns to pension savers as well as the wider economy. Legislative and policy changes, including further consolidation of pension schemes to increase pension schemes’ ability to deploy capital into UK private capital funds are vital, as is greater industry partnership. The BVCA’s Investment Compact has already brought together over 100 growth equity and venture capital firms committed to working with pensions schemes to consider effective structures that attract investment. If the Government is ambitious and considers a wide range of options in this review we are optimistic that this will deliver the clear roadmap we have called for, building on the work of the BVCA’s Pensions and Private Capital Expert Panel.
Aviva Director of Workplace Savings and Retirement Emma Douglas said:
We welcome the government’s determination to undertake a pensions review as an early priority. We fully support government’s ambition to get pension funds invested in a way that both supports UK growth and improves outcomes for savers. We see this as an important next step and look forward to working with government and industry on the Review.
Phoenix Group CEO Andy Briggs said:
The announcement of a pensions review by the government is much needed and is welcome news. Phoenix Group has committed to allocate 5% of assets in our default funds to unlisted equities by 2030 which will allow UK savers to invest in a more diversified portfolio. Our key priority is to deliver good outcomes for our customers and we are confident that Phoenix Group could invest up to £40 billion to support the economic growth agenda whilst keeping policyholder protection at its core. With only one in seven people in the UK saving enough for a decent standard of living in retirement, we are happy to see that this review will expand to look at pension adequacy. This is vitally important for people across the UK and we hope this will include a commitment to increasing auto-enrolment contributions.
Defined contribution schemes will be managing around £800 billion in assets by the end of the decade and the Review will explore ways to increase their investment into productive assets. Even a 1 percentage point shift of assets into productive investments could mean £8 billion of new productive investment to grow the economy and build vital infrastructure by the end of the decade.
This would also help savers using these schemes build up better retirement pots as productive assets are more likely to provide higher returns. Immediate action has already been taken to boost retirement savings through the Pensions Bill, which introduces a Value for Money Framework to promote better governance and achieve higher returns – boosting the pension pot of an average earner who saves over their lifetime in a defined contribution scheme by over £11,000.
The first stage of the review will examine actions to support greater productive investment and better retirement outcomes, including through further consolidation and encouraging at-scale schemes to increase returns through broader investment strategies.
The Local Government Pension Scheme (LGPS) in England and Wales is the seventh largest pension fund in the world, managing £360 billion worth of assets. Its value comes from the hard work and dedication of 6.6 million people in our public sector, mostly low-paid women, working to deliver our vital local services. Pooling this money would enable the funds to invest in a wider range of UK assets and the government will consider legislating to mandate pooling if insufficient progress is made by March 2025.
To cut down on fragmentation and waste in the LGPS, which spends around £2 billion each year on fees and costs and is split across 87 funds – an increase in fees of 70% since 2017, the Review will also consider the benefits of further consolidation.
The first stage of the review will report in the next few months and consider further measures to support the Pensions Bill. It will take account of the need to prioritise gilt market stability, liquidity and diversity. It will then broaden out to consider the wider pensions landscape to strengthen security in retirement. In the meantime, immediate action has been taken through new laws announced to Parliament in The King’s Speech.
Barclays CEO C. S. Venkatakrishnan said:
We welcome the Government’s timely review of the pensions sector. Pensions reforms are critical to unlocking institutional investment in growth equity, and alongside a streamlining of listing requirements, will give a significant boost to UK capital markets and growth. Building institutional demand is also an important signal in encouraging private share ownership.
Association of British Insurers Director General Hannah Gurga said:
This review is an important opportunity to provide much needed long-term strategy for the significant role the UK pensions sector plays in investment and economic growth. We welcome the holistic approach with the interests of savers going hand in hand with further boosting investment in the UK. Good outcomes for savers and providing stability must ultimately be at the heart of the reforms and we look forward to working with the government to achieve this.
M&G plc CEO Andrea Rossi said:
A Pensions Review is long overdue and to be welcomed. M&G has a rich heritage of investing in the UK and there are significant opportunities ahead to give the real economy a boost over the next decade and beyond. We know from experience, through our PruFund offer, that a large pooled fund gives savers access to a wider range of productive assets that aims to maximise benefits over the long-term. Consolidation, combined with the role of advice, has huge potential to align the interests of savers with the UK’s growth ambition. We look forward to supporting the Government on this landmark review.
Border to Coast CEO Rachel Elwell said:
Our focus is on delivering a strong and sustainable LGPS to enable it to pay the pensions of the 6.6 million local government workers in an affordable and sustainable manner. Through the commitment and support of our Partner Funds, Border to Coast has developed innovative and cost-effective investments, while cutting Private Market fees by almost 30%. We welcome the opportunity to work with the Government on a co-ordinated review to consider how the LGPS can continue to deliver for hard-working members, generate even greater value to local taxpayers, and deliver productive investment in the UK.
Nest CEO Ian Cornelius said:
Nest members represent a third of the UK workforce. Why wouldn’t we want to help invest in their jobs, their communities, and the infrastructure they use? Nest already invests more than £8.5bn into the UK. As one of the world’s biggest economies, there are further great investment opportunities available to pension schemes like Nest and we welcome the opportunities being announced to explore increasing investment in the UK.
Pension Protection Fund CEO Michelle Ostermann said:
Pension consolidation, and a fresh approach, can unlock billions in new UK growth-supporting investments and support the UK gilt market whilst securing the retirement incomes of many more pension members. We welcome the launch of the government’s review, marking the start of an important process, and look forward to playing our part.
Pensions and Lifetime Savings Association Director of Policy and Advocacy Nigel Peaple said:
It is positive the Government has acted quickly to initiate its promised review of our pensions savings system. Pension schemes already invest one trillion pounds in the UK economy, with this amount expected to grow as our defined contribution system matures. With the right regulatory framework and Government action to ensure a healthy pipeline of investible opportunities, we look forward to working with Ministers to create a pension system that works for the country and for savers.
Pensions & Private Capital Expert Panel Chair and co-founder of IQ Capital Kerry Baldwin said:
An early and ambitious review of the pensions landscape is an extremely important step in prioritising returns for UK savers and driving economic growth. The Chancellor’s Pensions Review will add further impetus to the work of the Investment Compact for Venture Capital and Growth Equity, which has brought together the private capital and pensions industries to support pension savers and to encourage investment from pension funds into unlisted equities. There has been significant progress through this collaboration. We are already developing a greater understanding of the ways we can work together to deliver new options for UK pension savers at the same time as supporting high growth, innovative UK companies with new sources of capital. The Review offers us the opportunity to develop this shared agenda further and deliver better outcomes for all the stakeholders.
TheCityUK CEO Miles Celic said:
Creating the right investment environment is critical both for improving people’s retirement incomes and for boosting growth across the UK. The government’s new Pensions Review will be an important mechanism to help deliver this. We look forward to working closely with government and regulators to ensure that an effective long-term strategy that supports financial resilience is developed.
Royal London Group Chief Executive Barry O’Dwyer said:
Pensions already play an important role in supporting UK economic growth, and the review announced by the Chancellor is a welcome opportunity to consider reforms that could strengthen this further. We are particularly pleased the review will focus on delivering better retirement outcomes for people, as this must always be the main priority of the pensions system. We are also encouraged that the next phase of the review will examine retirement adequacy, as creating a long-term plan for increasing contributions will have a major impact on improving retirement outcomes and helping to finance growth.
Citi UK CEO Tiina Lee said:
We welcome the Government announcing a pensions review to boost investment in the UK economy. The UK is home to the second-largest pool of long-term capital in the world. Based on Citi’s experience with global investors, increasing pension fund investment will reinvigorate funding in British companies and infrastructure projects and bring real benefits to our economy and society.