Rachel Reeves is proposing to shake up Britain’s pension system as part of a three-pronged plan aimed at boosting the economy’s sluggish growth rate if Labour wins the next election.
The shadow chancellor wants more of the money saved for retirement schemes to find its way into support for expanding UK businesses, and says her reforms could increase the size of the average pension pot by up to £37,000.
keen on a French-style scheme under which institutional investors and defined contribution funds would come together to channel money into UK firms with growth potential. The shadow chancellor would also give the Pensions Regulator more power to reduce the number of UK defined contribution funds through a process of consolidation.
If this sounds familiar, it is because there is not a cigarette paper to be slid between this and the vision behind the Mansion House reform. While many on the left are calling for protectionism and the mandating of investment into UK companies, Reeves is looking at a more fiduciary friendly approach which accords with that advocated by her counterparts in the Treasury/DWP.
The FT’s Jo Cumbo, who appears to have attended a “press-briefing” by Reeves reports
Labour wants to “build” on his (Chancellor Hunt’s) reforms by establishing a state-backed scheme for DC pension funds to invest a proportion of their assets alongside the British Business Bank, the state-owned economic development investor, into UK growth assets.
Hunt’s compact did not specify signatories to invest in the UK, which Reeves described as a “missed opportunity”. Significantly, Reeves did not propose to force funds to invest in UK assets, saying: “I don’t think mandating is the right thing to do.”
So confusingly, Reeves appears to “miss the opportunity” too. She is wise not to push too hard , she is facing considerable headwinds from parts of the pensions community, not least the insurance industry,
Taking on received wisdom of “de-risking”.
It is becoming increasingly clear, that what stands in the way of both Conservative and Labour plans for the re-allocation of pension investment into UK Growth are the rules that prevent much of our retirement savings from being invested in productive finance.
These are rules that prevent the money invested in annuities and deferred annuity contracts (know as “buy-out”) from being redirected back into the real assets that drive growth in the UK economy.
The insurance industry greatly benefits from the vast majority of DC asset flows sitting on insured platforms , in insured and reinsured funds.
In addition, it is cherry-picking the DB schemes it finds most profitable to buy-out,
While it luxuriates in the easy pickings created by the auto-enrolment collection system and the Pension Regulator’s signposting of buy-out as the gold-plated solution, it is giving back little to nothing to the UK economy- by way of productive finance.
Historically, the Treasury, the Bank of England, the PRA and the FCA have collectively backed the ABI as the means to lockdown pension liabilities through investment in corporate debt.
Let’s hope that the Mansion House reforms will open the doors to trustees of occupational schemes to invest better- in long term assets that drive the British economy , create jobs and make good quality pensions affordable.