Rachel Reeves to create pension ‘mega funds’ to invest in infrastructure

Published

1 week ago

November 13, 2024

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Pension “mega funds” will be created under government plans to increase infrastructure investment.

Reforms could “unlock £80bn” of investment, according to Treasury plans, which say bigger funds can get greater returns.

Chancellor Rachel Reeves wants to imitate the way large Canadian and Australian pension schemes work.

She will give more details about her plans in a speech at Mansion House on Thursday evening.

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Almost 90 local government pension pots will be grouped together, with defined contribution schemes merged and assets pooled together.

This is part of the government’s plan to increase economic growth through investing in infrastructure.

Pension schemes get greater returns when they reach around £20bn to £50bn as they are “better placed to invest in a wider range of assets”, according to the government.

This is backed up by evidence from Canada and Australia, the government argues – with Canada’s schemes investing four times more in infrastructure, and Australia three times more compared to the UK’s defined contribution schemes.

Ms Reeves said it marks “the biggest set of reforms to the pensions market in decades”.

The chancellor added the changes would “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”.

However, Tom Selby, the director of public policy at financial company AJ Bell, said: “There needs to be some caution in this push to use other people’s money to drive economic growth. It needs to be made very clear to members what is happening with their money.”

The government says the funds will be regulated by the Financial Conduct Authority and will need to “meet rigorous standards to ensure they deliver for savers”.

Local government pensions v defined contributions

The Local Government Pension Scheme in England and Wales will manage assets worth around £500bn by 2030. These assets are currently split across 86 different administering authorities, with local government officials and councillors managing each fund.

Under the government plans, the management of local government pensions and what they invest in will be moved from councillors and local officials to “professional fund managers”.

This will allow them to invest more in assets such as infrastructure, supporting economic growth and local investment on behalf of the 6.7 million public servants, the government said.

Defined contribution pension schemes are set to manage £800bn worth of assets by the end of the decade.

There are around 60 different multi-employer schemes, each investing savers’ money into one or more funds. The government will consult on setting a minimum size requirement for these funds.

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Businesses cautious – but pensions sector backs plans

Businesses will need to be reassured that the government’s plans are watertight following the fallout from the budget, according to the trade group the Confederation of British Industry (CBI).

The CBI’s chief economist Louise Hellem said: “While the chancellor is right to concentrate on mobilising investment, putting pension reform to work for the government’s growth mission, unlocking investment also needs competitive and profitable businesses.

“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 businesses and communities can succeed.

“Pension schemes will want to operate within a UK economy that is prospering.”

But key parts of the pensions sector gave their backing to the government’s plans, including Standard Life, Royal London, Local Pensions Partnership Investments and the Pensions and Lifetime Savings Association.

Deputy Prime Minister Angela Rayner said: “This is about harnessing the untapped potential of the pensions belonging to millions of people, and using it as a force for good in boosting our economy.”

Politics

Starmer says UK will ‘set out a plan’ to raise defence spending to 2.5%

Published

6 hours ago

November 23, 2024

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Starmer says UK will 'set out a plan' to raise defence spending to 2.5%

The UK will “set out a plan” to lift defence spending to 2.5% of national income in the spring, the prime minister has said, finally offering a timeframe for an announcement on the long-awaited hike after mounting criticism.

Sir Keir Starmer gave the date during a phone call with Mark Rutte, the secretary general of NATO, in the wake of threats by Moscow to target UK and US military facilities following a decision by London and Washington to let Ukraine fire their missiles inside Russia.

There was no clarity though on when the 2.5% level will be achieved. The UK says it currently spends around 2.3% of GDP on defence.

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A spokeswoman for Downing Street said that the two men “began by discussing the situation in Ukraine and reiterated the importance of putting the country in the strongest possible position going into the winter”.

They also talked about the deployment of thousands of North Korean soldiers to fight alongside Russia.

“The prime minister underscored the need for all NATO countries to step up in support of our collective defence and updated on the government’s progress on the strategic defence review,” the spokeswoman said.

“His government would set out the path to 2.5% in the spring.”

The defence review will also be published in the spring.

While a date for an announcement on 2.5% will be welcomed by the Ministry of Defence, analysts have long warned that such an increase is still well below the amount that is needed to rebuild the armed forces after decades of decline to meet growing global threats from Russia, an increasingly assertive China, North Korea and Iran.

They say the UK needs to be aiming to hit at least 3% – probably higher.

With Donald Trump returning to the White House, there will be significantly more pressure on the UK and other European NATO allies to accelerate increases in defence spending.