Chancellor Jeremy Hunt Set to Unlock £75bn of Pension Funds for UK Startups
In an effort to boost investment in homegrown startups and foster the development of the next Silicon Valley, UK Chancellor Jeremy Hunt is set to unveil plans to merge workplace pension schemes and release up to £75bn of retirement funds. These proposals, aimed at mobilizing funds from the UK’s £2.5tn pensions sector, are expected to be outlined in a speech at the lord mayor’s annual Mansion House dinner on Monday evening.
Hunt will emphasize the importance of consolidating the UK’s various pension schemes to pool their funding and generate better returns for future retirees. As part of the plan, the Treasury has reached an agreement with nine major pension providers, including Aviva, Scottish Widows, and Legal & General, to allocate 5% of retirement funds towards private investments.
The government plans to create new investment vehicles that would allow future retirees to have a stake in homegrown private companies, particularly in the fast-growing fintech and biotech sectors. This move aims to counter the trend of these startups looking for funding from foreign investors instead of relying on the London Stock Exchange.
The proposed reforms are in line with the government’s broader strategy to attract more business investment and position the UK as a global hub for innovation. According to the Treasury, these changes could result in a 12% increase in pension returns for the average earner who starts saving at 18 years old.
Hunt is expected to state, British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 per year for typical earners throughout their careers. This will also drive growth in the UK by increasing investment in our most promising companies.
If other pension schemes follow suit, the so-called Mansion House compact, which has already been signed by Aegon, Phoenix, Nest, Smart Pensions, M&G, and Mercers, could potentially release £50bn from defined contribution pension funds by 2030.
Additionally, Hunt plans to accelerate the consolidation of local government pension schemes over the next two years and double their investment in private equity to 10%. This move could potentially unlock an additional £25bn by 2030.
While the consolidation of pension schemes would be voluntary, any schemes that fail to achieve the best possible outcome for their members would be merged with more successful counterparts by the pensions regulator.
The Treasury’s analysis has shown a significant 46% difference in returns between the best and worst performing pension schemes. This means that individuals with a pension pot of £10,000 could have missed out on £5,000 over five years.
While industry players have largely welcomed these reforms, some have urged caution. They expressed concerns about the potential risks associated with investing heavily in illiquid assets, as exemplified by the fall of prominent fund manager Neil Woodford.
Andrew Bailey, the Bank of England governor, was also expected to address the Mansion House dinner, signaling further anticipated interest rate increases to combat inflation.
The Chancellor’s proposals aim to tap into the significant pool of pension funds in the UK to support homegrown startups and drive economic growth. By creating better investment opportunities for pension schemes and aligning retirement funds with promising private companies, the government hopes to foster the growth of the country’s own Silicon Valley, ensuring greater retirement income for UK workers and a boost to the country’s most promising industries.
