Aviva, L&G, Phoenix and Scottish Widows are among the names to back the new “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.
Firms to back the commitment, which also include Aegon, Nest, Smart Pensions, M&G and Mercers, make up the majority of the UK’s £1.2 trillion DC workplace pensions market.
The move comes after months of wrangling between City groups and the pension sector to try and get pension cash flowing into the so-called productive economy.
Pension funds currently allocate a tiny chunk of their cash to private firms and have instead poured into FTSE 100 firms and safer bond holdings.
The Chancellor Jeremy Hunt is set to unveil the new measures in the annual Mansion House speech this evening in a wider package of measures dubbed the Mansion House Reforms, which he said will boost returns for savers as well as fuel a new wave of British start-ups.
“British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career,” Hunt said in a statement.
“This also means more investment in our most promising companies, driving growth in the UK.”
The commitment is currently non-legally binding and will serve as merely an “expression of intent” for firms. Firms listed on the smaller growth exchanges, the London Stock Exchange’s AIM market and Aquis exchange, will also be eligible for investment from pension funds.
Calls for reform have been spearheaded by the Lord Mayor of London Nicholas Lyons, who said today’s commitment marked a “historic turning point” that will offer “a brighter future for retirees and channel… billions into our economy”.
Government analysis claimed the package of reforms could help increase pension pots for an earner who starts saving at 18 by 12 per cent over their career, meaning they could bag over £1,000 more a year in retirement.
Ministers will also look to push Local Government Pension Schemes toward greater consolidation to try and double existing investments in private equity to 10 per cent, which could unlock a further £25bn by 2030.
The measures come as ministers and regulators look to revive the floundering fortunes of the Square Mile by stripping back red tape and incentivising more firms to come to market.
Hunt announced further changes to the UK’s listings regime including streamlining the prospectuses firms are required to draw up for investors. Ministers also said they would accept the recommendations of a new Research Review today with the eventual aim of ditching EU era unbundling rules.
Mifid II, the inherited EU law, requires brokers to charge a separate fee for research and has been blamed for a dearth of research on UK plc.