The new Labour government’s mandate to change Britain and kick-start economic growth in the UK focused on pensions within three weeks of it winning the election in July.
Chancellor Rachel Reeves launched what is labelled “a landmark review” designed to boost investment in the UK economy, increase pension savings and tackle “waste” in the pensions system.
The chancellor, noting there is no time to waste, considers the review being announced to be the “latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners”.
The government’s mission is to “boost growth and make every part of Britain better off”. This has some similarities to some announcements made in the Mansion House speech by Jeremy Hunt regarding unlocking the potential for growing the UK economy and the value for money review, so perhaps this means it will have cross-party support like automatic enrolment.
Focus on ‘productive investment’
The initial focus of this review will be to unlock the £2tn in pension schemes in order to boost the UK economy, particularly investments in infrastructure projects, referred to as “productive investment”.
The review is looking at defined contribution pension schemes and the Local Government Pension Scheme, which is the seventh-largest pension fund in the world, to achieve this.
The government is mindful of defined benefit pension schemes, but has made it clear that ongoing policy development relating to DB workplace pension schemes (other than the LGPS) will remain separate from this review.
Reeves has said that she expects the 87 separate pension funds that participate in the LGPS in England and Wales to pool their £360bn worth of assets so that they can invest in a wider range of UK assets using economies of scale.
The government has even gone so far as to say that, if insufficient progress is made on this goal by March 2025, it will consider legislating to mandate such pooling.
Consolidation of the separate funds in the LGPS will also be considered as it is anticipated this will result in a decrease of the £2bn annual spend on fees and costs in the LGPS, which is probably seen as some of the “waste” in the pensions system. This figure has risen by a remarkable 70 per cent since 2017.
It would appear this sharp spike in costs has arisen, at least partially, from general cost increases, as well as the additional obligations imposed on pension schemes resulting from the increased regulation of such schemes. Given these factors, getting rid of this “waste” may not be as easy to achieve over the short term.
What is the focus of the pensions review?
More detailed terms of reference for the pensions review were published on August 16. It has been confirmed that the initial targets of the review will be DC workplace schemes and the LGPS.
The focus will be on consolidation and improved governance, with the goal of achieving a greater focus on value and encouraging pension investments in order to boost the UK economy.
