In a move to foster the development of the next Silicon Valley, Chancellor Jeremy Hunt is set to announce plans to merge workplace pension schemes and release up to £75bn of retirement funds for fast-growing startups. These proposals, aimed at mobilizing investment from the UK’s £2.5tn pensions sector, will be outlined in a speech at the lord mayor’s annual Mansion House dinner. Hunt will emphasize the need for consolidation of pension schemes to create better returns for future retirees. The government will also create new investment vehicles that give retirees a stake in homegrown private companies, particularly in fintech and biotech startups. These reforms align with the government’s plans to attract more business investment and position the UK as a global innovation hub.
The Treasury has struck a deal with nine major pension providers, requiring them to allocate 5% of retirement funds towards private investments. The government believes this will not only benefit emerging industries but also yield higher returns for workers’ retirement funds. The reforms could potentially increase pension returns by 12% for average earners who start saving at 18 years old. Chancellor Hunt highlights the importance of British pensioners benefiting from British business success, and these reforms would unlock investment, boost retirement income, and drive growth in the UK’s most promising companies.
Additionally, the Treasury has signed the “Mansion House compact” agreement with large pension fund managers, including Aviva, Scottish Widows, and Legal & General. This agreement will result in 5% of assets in default pension funds being invested in private and high-growth companies. The consolidation of local government pension schemes and increased investment in private equity will further unlock potential funds. The government also plans to encourage defined contribution pension schemes to pool their cash, potentially creating a new “superfund.” Failure to achieve the best possible outcome for the scheme members could lead to the merging of underperforming schemes with more successful ones.
While the reforms have been positively received, industry players await further details. Tom Selby, the head of retirement policy at AJ Bell, warns about the challenges of large investments in illiquid assets, citing the case of fund manager Neil Woodford. Woodford’s heavy investments in private companies that were difficult to sell off quickly resulted in losses for investors. Overall, these pension reforms aim to maximize the potential of retirement funds, support the growth of innovative industries, and ensure a secure future for retirees.
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