Proactive Investors – Chancellor Racheal Reeves is to unveil sweeping plans to create UK pension megafunds in her first Mansion House speech tonight.
According to reports today, Reeves wants to emulate the pension-funded investment powerhouses of Canada and Australia, which own significant chunks of Britain’s infrastructure.
Keen to deflect criticism from a growing number of businesses over the costs burden of her tax hikes in the Budget, Reeves said the plan will show the “government is going for growth”.
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“That starts with the biggest set of reforms to the pensions market in decades to unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off.”
A new Pension Schemes Bill next year will order the merger of defined contribution (DC) schemes from 86 local government pension schemes, which contain around £354 billion of assets.
Management of these megafunds will transfer from local authorities to City fund managers, who will be given a target for the amount to be invested in local economies.
In addition, Reeves wants a minimum size limit on defined contribution schemes in the private sector and containing around £800bn of investments to encourage their consolidation into bigger funds
These changes could “unlock” £80bn worth of investment into the UK, Reeves told the BBC.
“Our pension funds in Britain are too small to be making the investments that get a good return for people saving for retirement.”
Commentators said the plans made sense on paper but warned that consolidating money into big funds might restrict funding for small caps.
Louise Hellem, CBI chief economist suggested the UK also needed to be doing well to make the idea work
“With the Budget piling additional costs on firms and squeezing their headroom to invest, the Government needs to work hard to regain the confidence in the UK as a place where businesses and communities can succeed.
“Pension schemes will want to operate within a UK economy that is prospering.”
