The Chancellor has confirmed plans to force pension funds to combine their assets into larger megafunds, with ministers arguing that the increase in scale will make it easier for them to invest in UK assets, boosting growth.
Ministers want to double the number of UK pension megafunds by 2030, with the pensions review claiming that by that year, the schemes could be saving £1bn annually through economies of scale and improved investment strategies.
Announcing the reforms, Reeves said: “We’re making pensions work for Britain. These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses – the Plan for Change in action.”
Under the current Local Government Pension Scheme, £392bn of assets is split over 86 administering authorities, but this will now be consolidated into just six pools.
It is aimed at reversing a decline in domestic investment from UK pension funds, with only about 20 per cent of defined contribution assets currently invested in the UK compared to over 50 per cent in 2012.
The Government has separately obtained a voluntary commitment from pension funds to invest five per cent of their assets in the UK.
The Government also plans to free up as much as £160bn of surplus funds currently sitting in defined-benefit pension schemes.
This could include improving benefits for existing members of the scheme, using surplus funds to boost the pensions of employees of the sponsoring employer and allowing funds to be returned to the company to be used to benefit the business.
He said: “Pension scheme funding has been transformed in recent years, with the majority of schemes now in surplus and funding improvements locked in through low-risk investment strategies, meaning that they are here to stay.
“But the Government has clearly been bold in this area and this opens up the potential for this surplus money to be used more productively to benefit scheme members, firms and the wider economy”.
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