UPDATED: Chancellor unveils Mansion House reforms

Chancellor, Jeremy Hunt, has announced a package of reforms designed to boost pensions and increase investment in British businesses, suggesting that the defined contribution (DC) reforms could increase a typical earner’s DC pot by 12 per cent.

Hunt's first Mansion House speech revealed plans “unlock” up to £75bn of additional investment from DC and Local Government Pension Schemes (LGPS), to support the Prime Minister’s priority of growing the economy and delivering benefits to savers.

The government has since published a number of documents and consultations to support the measures announced by the Chancellor.

Included in the Mansion House reforms and documents published since are:

- Plans to consult on a March 2025 pooling deadline for LGPS - read more here.

- A new voluntary initiative for DC pension providers to allocate 5 per cent of assets in their default funds to unlisted equities by 2030 - read more here.

- Plans to introduce a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new way of managing DB liabilities, and a call for evidence possible role of the Pension Protection Fund and the part DB schemes could play in productive investment - read more here.

- Further detail on a proposed framework for a multiple default consolidator model that aims to address the large number of deferred small pension pots - read more here.

- The Department for Work and Pensions (DWP), The Pensions Regulator and the Financial Conduct Authority's joint response to the consultation on the upcoming value for money (VFM) framework - read more here.

- A joint call for evidence to deepen the evidence base around trustee capability and the barriers to trustees doing their job in a way which is effective - read more here.

- A consultation on plans a new decumulation policy framework and plans to expand collective defined contribution (CDC) - more to follow.

Mansion House 2023

Guided by the Chancellor's 'three golden rules', the Mansion House Reforms aim to secure the best possible outcome for pension savers, whilst prioritising a strong and diversified gilt market, and strengthening the UK’s position as a leading financial centre.

While Hunt’s speech noted that the UK has the largest pension market in Europe, worth over £2.5trn, he argued that “how this money is invested is limiting returns for savers”, suggesting that reform could provide a boost to both savers and the economy.

As part of this, he confirmed plans to introduce a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new way of managing DB liabilities.

Hunt also announced that a call for evidence will be launched tomorrow (11 July) on the possible role of the Pension Protection Fund (PPF) and the part DB schemes could play in productive investment whilst securing members’ interests and protecting the sound functioning and effectiveness of the gilt market.

The PPF welcomed the plans for a call for evidence, with chief executive, Oliver Morley, suggesting that “in seeking views on whether we could help deliver better outcomes for defined benefit pension members and the wider economy, it recognises that the PPF's skills, capabilities and proven track record could be harnessed to deliver new solutions”.

“We remain focused on delivering for our current members and levy payers and stand ready to support policy makers and industry in the future,” he continued. “We encourage stakeholders to contribute views and look forward to playing our part in this important debate.”

In addition to the DB reforms, the Chancellor unveiled a number of DC measures, including the launch of the Mansion House Compact, , a voluntary commitment for DC schemes to allocate a minimum of 5 per cent of assets in default funds to unlisted equities.

In addition to this, Hunt confirmed that the government will look to launch a consultation on setting an ambition to double existing LGPS investments in private equity to 10 per cent, suggesting that this could “unlock” £25bn by 2030.

In order to ensure that the money unlocked by these reforms is invested quickly and effectively, the Chancellor also revealed that he has asked the British Business Bank (BBB) to explore the case for government to play a greater role in establishing investment vehicles, drawing upon the BBB’s skills and expertise.

Hunt also revealed plans to launch a call for evidence to explore how the government can support pension trustees to improve their skills, overcome cultural barriers and realise the best outcomes for their pension schemes and subsequently their members.

He also said that the government will also be looking to encourage the establishment of new collective defined contribution (CDC) funds which can invest more effectively by pooling assets.

In addition to the pension specific measures, Hunt has announced broader measures designed to make UK capital markets more attractive for business and grow the economy.

In particular, the new measures will look to simplify prospectuses, meaning that the document a firm must produce for any would-be investor is easy to produce, accessible, and understandable.

The Chancellor also set out plans for a new kind of trading place that connects private and public markets, which will allow private companies to access public markets, helping them grow and driving more economic activity - the first of its kind worldwide.

The wide-ranging package is set to build upon the Edinburgh Reforms previously announced in December 2022, and comments made in the 2023 Spring Budget.

Commenting on the plans, Hunt stated: “British pensioners should benefit from British business success. By un-locking 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.”

Secretary of State for Work and Pensions, Mel Stride, added: “British workers should have the confidence that their pension savings are working as hard as they are.

“Our reforms will benefit savers and society – unlocking investment into pioneering UK businesses, growing the economy, and helping the record number of people in this country saving into a pension to achieve the retirement they want.”

The reforms were also welcomed by The Pensions Regulator (TPR), with chief executive, Nausicaa Delfas, suggesting that they will support TPR’s ambition for pension savers to be in large, well-run schemes that deliver good outcomes at every stage of their retirement journey.

“They will drive a long-term focus on value, encouraging schemes to invest in the full range of asset classes to deliver higher returns for savers,” she continued.

“The value for money framework will shine a light on schemes that consistently underperform, and new powers will allow us to enforce consolidation where necessary.

“Similarly, the expansion of collective defined contribution schemes (CDCs) and
introduction of a permanent regime for pensions superfunds all represent a welcome boost for innovation in savers’ interests.”

Adding to this, Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy, Nigel Peaple, said: “The government has engaged with the pension industry over many aspects of the proposals announced today.

"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.

“With the right policy and regulatory initiatives, and support from the right type of fiscal incentives, there is a potential for a win, win, win - for pension savers, schemes and the UK economy.

"However, this is a complex area, and it is easy to get the wrong outcomes, so the government is right to propose undertaking a public consultation on all the key issues over the next couple of months."

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