Labour is looking to introduce new laws that will allow it to set legally binding targets for how much pension funds must invest in assets not traded on public stock exchanges.
But while the Government itself has said this could boost people’s retirements, some pension experts are sceptical, and say its possible that the plans could lead to people’s investments growing at smaller rate.
It also suggested that someone earning £30,000 a year and contributing the standard 8 per cent to their pension – currently the minimum under automatic enrolment – could see their retirement pot end up £13,787 smaller if invested in private markets, than it would if they invested heavily in overseas stocks instead.
Quilter compared a pension with some investments in private equity – as would be the case under Government plans – to a pension with larger investments in stocks in overseas firms.
The analysis shows that pensions may also end up growing by smaller amounts if a certain amount of investment in UK companies was mandated by the UK Government.
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Jon Greer, head of retirement policy at Quilter, noted these are forecasts, not guarantees, and the actual effect on pensions remains highly uncertain.
The Government reforms come as part of the proposed Pension Schemes Bill and – in essence – the shift would mean savers’ pensions could be directed into long-term projects – like building new homes – rather than traditional listed stocks and bonds.
While some experts believe the strategy could help unlock more cash for pension holders, others remain sceptical about potential risks and returns.
The Government argues that its reforms will benefit millions, claiming a £6,000 increase in retirement savings by 2030 as a result of doubling the number of UK pension megafunds.
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Greer added: “While economies of scale should lead to lower costs – something worth watching closely – return estimates should be approached with caution.
One thing remains clear, according to Greer, and that is for individual savers, the most effective way to grow retirement wealth is not changing investment strategy, it is contributing more.
“It’s a win-win scenario overall but make no mistake – the economic victory is far greater than the personal one.
The Treasury has been contacted for comment.
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