Chancellor Jeremy Hunt is to announce reforms to pension investments which could boost the average earner’s pensions income by more than £1,000 a year.
The minister has supported an agreement between nine of the UK’s biggest defined contribution pension providers which commits them to allocating five percent of their assets in default funds to unlisted equities by 2030.
The group of providers represents the majority of the UK’s defined contribution workplace pensions market with more than £400billion in assets.
The Government says the new policy could unlock up to £50billion in investments in high growth companies if all defined contribution providers take up the commitment.
Mr Hunt said: “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career.
“This also means more investment in our most promising companies, driving growth in the UK.”
As part of the Chancellor’s Mansion House Reforms, he will also announce a new Value for Money Framework, to clarify that investment decisions by pension forms should be based on long-term returns and not just costs.
This would mean pension schemes which are not performing could be wound up into larger schemes which are doing better.
Figures suggest over a five-year period that can be as much as a 46 percent difference between the best and worst performing pension schemes.
This means a pension saver with £10,000 in their pot could have lost £5,000 over this five-year period by being in the lowest performing scheme.
The Chancellor has also spoken with the British Business Bank to explore the case for the Government to play a greater role in establishing pension investments.
This will work alongside £250million of support the Government has made available through the Long-term Investment for Technology and Science (LIFTS) initiative, to encourage new industry-led investment vehicles.
Ministers also want to introduce a superfund regulatory regime to help employers and trustees manage defined benefit investments.
Mr Hunt has also set out a proposal for a new trading place connecting private and public investment markets.
This ‘intermittent trading venue’ will provide a space for private companies to access public markets, and will be the first of its kind worldwide.
Nigel Peaple, director of Policy and Advocacy at the Pensions and Lifetime Savings Association, said: “It is important and very welcome that pension schemes’ ability to direct their own investment strategy in the best interests of their members has been protected.
“As is widely recognised, investments totalling around £1trn by pension funds in UK assets already support economic growth and are a major source of long-term investment in the UK economy.
“We welcome measures which improve access to a broad range of assets and schemes will always be interested in exploring investments which have a strong likelihood of generating good returns, within their risk tolerances, and in the interests of their individual members.”
C. S. Venkatakrishnan, group chief executive at Barclays, said: “The UK has needed a bold, forward-looking policy agenda and industrial strategy to grow the economy.
“These Mansion House Reforms are an important step in the right direction in mobilising private capital to support growth and innovation.”
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