Chancellor Jeremy Hunt has unveiled a series of reforms, coined as the Mansion House reforms, aimed at bolstering pensions and stimulating investment in British businesses. The reforms, focused on defined contribution (DC) pensions, could potentially increase a typical earner’s DC pot by 12%. Hunt’s plans include tapping into £75 billion of additional investment from DC and Local Government Pension Schemes to fuel economic growth and benefit savers. The government has also released several documents and consultations to support these measures.
Key aspects of the Mansion House reforms include:
- a proposed pooling deadline for Local Government Pension Schemes;
- a voluntary initiative for DC pension providers to allocate 5% of default fund assets to unlisted equities by 2030; and
- the introduction of a permanent superfund regulatory regime for managing defined benefit (DB) liabilities.
Additionally, the government aims to establish a framework for multiple default consolidator models and is exploring trustee capability and barriers in a joint call for evidence. A consultation on decumulation policy (i.e. to balance money coming out of the pot for short-term income with money staying in the pot to generate future income) and expanding the collective defined contribution schemes regime (CDCs) is also anticipated.
The Mansion House reforms, guided by the Chancellor’s three golden rules, look to prioritise the best outcomes for pension savers, maintain a robust gilt market and strengthen the UK’s position as a financial centre. Hunt believes that reforming how pension funds are invested can boost returns for savers and the overall economy. The permanent superfund regime seeks to offer new ways for managing DB liabilities, while a call for evidence will explore the Pension Protection Fund’s role and the potential for DB schemes to contribute to productive investment.
In the DC realm, the Mansion House Compact is to be launched, encouraging DC schemes to allocate at least 5% of default fund assets to unlisted equities. Furthermore, a consultation is set to double Local Government Pension Scheme investments in private equity by 2030, unlocking £25 billion. To expedite effective investment of these unlocked funds, the Chancellor has requested that the British Business Bank evaluate the government’s greater role in establishing investment vehicles. A call for evidence will also seek ways to improve pension trustees’ skills, overcome cultural barriers and enhance outcomes for schemes and members. The government aims to promote the establishment of new CDC funds that can pool assets and invest more effectively.
Hunt’s reforms extend beyond pensions, with measures hoping to make UK capital markets more attractive for businesses and boost economic growth. These include simplified prospectuses and a unique trading place connecting private and public markets to facilitate private companies’ access to public markets, all with the aim of driving economic activity.
The comprehensive reforms build upon the Edinburgh Reforms announced in December 2022 and align with the 2023 Spring Budget. The Chancellor emphasises the potential to increase retirement income by more than £1,000 per year for the typical earner’s career through unlocking investment. The package of reforms has received positive feedback from industry bodies, highlighting the potential for innovation, economic growth and positive outcomes for pension savers.
The government has proposed to undertake a public consultation on all the key issues that the reforms aim to tackle and how they will best be resolved. This has been welcomed by the Pensions and Lifetime Savings Association which notes that this is a “complex area”. Practitioners and trustees are therefore encouraged to watch this space on the Mansion House reforms and see what outcomes are identified from the consultation.