Chancellor backs British business with pension fund reforms

Pension funds to publicly disclosure how much they invest in UK businesses Vs those overseas.

Schemes performing poorly for savers won’t be allowed to take on new business from employers.

Changes are part of the government’s plan to improve outcomes for savers and consolidate the pensions market.

The Chancellor has today (2 March) announced pension fund reforms as a further step in the government’s plan to boost British business and increase returns for savers. This includes requirements for Defined Contribution (DC) pension funds to publicly disclosure their level of investment in the UK.

The government’s auto enrolment rollout has driven a huge growth in the amount of investment entering UK pension funds, from less than £90 billion in 2012 to around £116 billion in 2022. However, the disclosure requirements for DC pension funds are currently inconsistent across the market and do not require a breakdown of UK investments, sometimes making it difficult for policymakers and savers to understand where this money is invested.

By ensuring pension funds publicly disclose where they invest and the returns they offer, it will make it possible for employers and savers to compare schemes and make informed choices. The government is embarking on Value for Money (VFM) pension fund reforms to improve outcomes for savers and consolidate the DC pensions market. The reforms will ensure that pension managers are focused on securing good returns for savers. 

Under the plans:  

• By 2027 DC pension funds across the market will disclose their levels of investment in British businesses, as well as their costs and net investment returns. 
• Pension funds will be required to publicly compare their performance data against competitor schemes, including at least two schemes managing at least £10 billion in assets. 
• Schemes performing poorly for savers won’t be allowed to take on new business from employers, with The Pensions Regulator (TPR) and Financial Conduct Authority (FCA) having a full range of intervention powers. 

The plans are subject to a consultation by the Financial Conduct Authority and build on the Government’s Mansion House compact, that encouraged pension funds to invest at least 5% of their assets in unlisted equity. 

Chancellor Jeremy Hunt said: 

“We have already started on a path to drive growth, unlock capital for our most promising companies and improve outcomes for savers – and these new rules mean employers and savers can see how their money is invested and how the returns compare to other schemes.

“British pension funds appear to contribute less to the UK economy than international counterparts do as they invest less in our domestic businesses. These requirements will help focus minds on how to improve overall returns and outcomes for savers.”

Secretary of State for Work and Pensions, Mel Stride MP, said:   

“The incredible success of automatic enrolment has opened up a huge opportunity to grow the economy, boost British businesses and fuel our futures. It has helped us transform the pensions landscape over the last decade.  

“And our Value for Money framework will take this one step further, focusing pension managers on their number one priority – securing the best possible returns for savers – as well as providing a boost to the wider economy.”  

Julia Hoggett, CEO of London Stock Exchange plc and Chair of the Capital Markets Industry Taskforce, said: 

“Pension holders should know how much is being invested in equities in their home market. Investing in UK companies ultimately benefits those companies and the returns they are delivering, which supports the economy and the country in which pension holders live, to everyone’s benefit and in everyone’s interest.” 

James Ashton, Quoted Companies Alliance chief executive, said: 

“There is huge upside to aligning the UK’s financial assets with innovative homegrown ventures that could be tomorrow’s world beaters. We welcome these new disclosures and hope they are the first step to many UK pension funds discovering the numerous high-potential companies whose shares are traded on their doorstep.” 

Chris Hayward, Policy Chairman of the City of London Corporation, said:  

"The Mansion House Compact aims to channel long-term capital from pension funds into growth companies. It will support high-growth companies to start, scale and stay in the UK. We welcome the Government's action to support this objective which will turn the dial to drive investment into UK businesses. It is vital that the pension ecosystem focusses on value for money and long-term returns for savers.” 

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Notes to editors

The VFM reforms: 

• The Value for Money framework is a joint programme of reforms by the Government, The Pensions Regulator (TPR) and Financial Conduct Authority (FCA) aimed at improving the performance of DC pensions.  
• The reforms will ensure that pension managers are focused on securing good returns for savers – not just on driving down management fees at the expense of long-term performance – and could lead to consolidation in the market. 
• The FCA will set out next steps for these reforms in a consultation in Spring 2024.   
• The Government and FCA have existing powers which can be used to implement the UK investment disclosures if necessary to ensure these disclosures are made by 2027. Primary legislation is required to introduce the full framework and the Government will bring forward legislation as soon as Parliamentary time allows.   

The Defined Contribution market is growing rapidly, fuelled by Auto Enrolment which has helped increase overall pension saving each year from less than £90 billion in 2012 to around £116 billion in 2022. Aided by the Government’s reform agenda, DWP anticipate that by 2030 the vast majority of savers will be invested in schemes managing over £30 billion in assets.  

DWP analysis published at Autumn Statement set out the advantages that very large scale pension funds can bring for savers, for example lower costs, and greater capacity to invest in the full range of asset classes, such as private equity.