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Government Pushes for Larger Pension Fund Pools to Boost UK Economy

Rachel Reeves, the UK’s Chancellor of the Exchequer, has announced a review of the country’s pension system, with a focus on encouraging larger pension fund pools to invest in the UK economy. This move aims to boost investment, improve retirement savings, and reduce waste in the system.

The Current State of Pension Funds

The Local Government Pension Scheme (LGPS) in England and Wales is the seventh largest pension fund in the world, with assets worth £360 billion. However, it is administered by 86 separate council pension funds, which makes it difficult for them to achieve economies of scale when investing. Over the past decade, these funds have become more adept at working together to share resources and achieve better investment returns.

The Plan to Pool Pension Funds

Reeves has announced that she expects pension funds participating in the LGPS to pool their money at a larger scale, allowing them to invest in a wider range of UK assets. The government has warned that if insufficient progress is made by March 2025, it will consider legislating to mandate pooling. This move is intended to "unleash the full investment might of the £360bn LGPS to make it an engine for UK growth."

Challenges and Concerns

The push for greater pooling is likely to raise tensions with trustee managers of LGPS funds, who have a legal duty to invest for the best interests of their members. Local councils and workers could face increased contributions if investments do not deliver as expected.

Wider Review of the Pensions System

The review of the pension system will also examine how to reduce the £2 billion spent on annual fees by the LGPS. Additionally, the government aims to improve people’s financial circumstances in retirement, potentially through consolidation in private sector funds.

Key Objectives of the Review

The review will focus on the following key objectives:

1. Boosting Investment in the UK Economy: The government aims to increase investment in the UK economy by encouraging pension funds to invest in domestic businesses and infrastructure projects.
2. Improving Retirement Savings: The review will examine ways to improve people’s retirement savings, including possibly by consolidating private sector funds.
3. Reducing Waste: The government will investigate ways to reduce waste in the pension system, including potential consolidation of funds.

Upcoming Meetings and Announcements

Reeves and the new pensions minister, Emma Reynolds, will chair a roundtable meeting with pensions industry executives on Monday to kick-start the review. On Tuesday, Reeves will chair her first "growth mission board", a new cross-government committee set up to deliver Labour’s target of achieving the highest sustained growth in the G7 group of leading advanced economies.

The Potential Impact

A small shift in investment by defined contribution schemes of just 1 per cent could deliver £8 billion of "new productive investment" into the UK economy, according to the Chancellor.

Conclusion

The government’s review of the pension system aims to boost investment in the UK economy, improve retirement savings, and reduce waste in the system. The push for greater pooling of pension funds is expected to increase investment in domestic businesses and infrastructure projects, which could have a positive impact on the UK economy.

FAQs

Q: What is the Local Government Pension Scheme (LGPS)?
A: The LGPS is a pension scheme for local government employees in England and Wales, with assets worth £360 billion.

Q: Why is the government pushing for larger pension fund pools?
A: The government aims to boost investment in the UK economy, improve retirement savings, and reduce waste in the system by encouraging pension funds to pool their resources and invest in a wider range of UK assets.

Q: What are the potential benefits of pooling pension funds?
A: Pooling pension funds could lead to better investment returns, increased investment in the UK economy, and improved retirement savings for scheme members.

Q: Are there any potential challenges or concerns with pooling pension funds?
A: Yes, there are concerns that pooling pension funds could lead to increased contributions for local councils and workers if investments do not deliver as expected.

Q: What is the timeline for the review of the pension system?
A: The review is expected to be completed by March 2025, with the government considering legislation to mandate pooling if insufficient progress is made.

Author: www.ft.com

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