The Chancellor Jeremy Hunt has laid out sweeping plans to consolidate the fragmented pension market in the UK today in a bid to channel potentially billions of pounds of capital into start-ups and listed companies.
In his Autumn Statement today, Hunt said by 2030, the “majority of workplace [defined contribution] savers will have their pension pots managed in schemes of over £30bn” and by 2040 sprawling local government pension funds will be invested consolidated in pools of “£200bn or more”.
Government will also look to utilise the Pension Protection Fund, currently a £39bn industry lifeboat fund for insolvent company’s pension schemes, as a state-sponsored consolidator of funds to pool more assets.
“Pension fund reforms that will increase the flow of capital going to our most promising growth companies in a way that also improves outcomes for savers,” Hunt said. “I will take forward my Mansion House reforms starting with measures to consolidate the industry.”
Ministers are now expected to issue a call for evidence on the plans from the industry on the move to enhance the role of the fund. The move was hinted at over the Summer to a mixed reception from the industry.
Commenting on the move today, Nicholas Clapp, business development director at TPT Retirement Solutions, said the move laid out a “clear vision for the future” but the moves to shift the role of the PPF could scupper some competition in the sector.
“The government is aiming for a sector comprising a small number of large Defined Benefit (DB) schemes that can benefit from economies of scale and invest more in growth assets,” he added.
“However, these reforms could be a double-edged sword. If the PPF can consolidate schemes with solvent sponsors, it may limit competition in the existing market and prevent the creation of innovative private-sector solutions.”
Efforts to consolidate pension funds come amid a wider push to ramp up investment into start-ups and listed companies come after a slide in equity holdings over the past two decades.
Now just four per cent of the UK stock market is held by pension funds, down from 39 per cent in 2000, according to a new report from think tank New Financial.
Hunt announced two new investment vehicles for pension funds this week as well as a new Growth Fund run by the British Business Bank to channel more cash into smaller growth companies.
Aviva, L&G, Phoenix and Scottish Widows are among 10 names to back the “Mansion House Compact” that will see them divert a minimum of five per cent of defined contribution (DC) pension cash into unlisted British companies by 2030.
A separate venture capital compact has also now bagged 70 signatories with £100bn assets under management and commits investors to channelling the country’s retirement cash into growth tech companies.