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Chancellor Jeremy Hunt has unveiled plans to overhaul pension fund regulations, aiming to channel more retirement funds into British businesses and stimulate economic growth.
In a pre-budget announcement today, Hunt outlined measures to compel pension fund managers to disclose the extent of their investments in UK companies compared to overseas investments.
Under the proposed reforms, poorly performing pension schemes will be restricted from taking on new business from employers, part of an effort to streamline the UK’s pension market.
This initiative follows a set of measures introduced by Hunt last summer, prompted by concerns that foreign pension funds are investing more in UK firms than domestic funds.
Hunt stated, “British pension funds seem to contribute less to the UK economy compared to their international counterparts, as they allocate fewer investments to our domestic businesses.” He emphasized that these new requirements aim to enhance overall returns and outcomes for savers.
By 2027, defined contributions pension funds will be mandated to disclose their investments in UK businesses, alongside costs and net investment returns. Additionally, funds will be required to publicly compare their performance data against similar schemes managing at least £10 billion in assets.
The move towards benchmarking schemes reflects the government’s push for greater consolidation of pension funds, similar to models observed in Canadian and Australian superannuation funds. Regulators will be empowered to intervene in underperforming schemes to safeguard savers’ interests.
Underperforming schemes will face restrictions on taking new business from employers, with The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) equipped with intervention powers, according to the Treasury’s announcement.
City leaders have advocated for increased investment in domestic start-ups amid concerns over London’s public markets’ health and declining equity investment from pension funds in recent years.
Only four per cent of the UK stock market is currently held by pension funds, down significantly from 39 per cent in 2000, according to a report from the think tank New Financial.
Julia Hogget, chief executive of the London Stock Exchange, praised the reforms, emphasizing that pension holders should be aware of investments in their home market, which ultimately benefit the economy and citizens.
James Ashton, chief executive of the Quoted Companies Alliance, highlighted the potential benefits of aligning financial assets with innovative domestic ventures, positioning them as potential global leaders in the future.
