Labor promises a review of pensions to increase funding for UK growth

Unlock Editor’s Digest for free

Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.

Labor will carry out a comprehensive review of Britain’s pension system to find ways to unlock billions of pounds worth of pension fund capital to grow the country if it wins the next general election, shadow chancellor Rachel Reeves said.

In his speech a week before the Autumn Statement, Reeves set out a range of measures that went beyond proposals set out so far by Chancellor Jeremy Hunt to boost UK long-term pension investment in UK companies.

According to government analysis, the UK bond market is one of the largest in Europe and is worth around £2.5 trillion. However, British pension funds have largely avoided UK-listed stocks and small, unlisted companies, instead focusing on offshore markets and domestic government bonds.

Reeves said on Monday that if Labor comes to power, it will review the entire pensions landscape to ensure it offers “full potential” for savers and businesses. This would range from private sector defined contribution (DC) and defined benefit schemes to municipal pensions.

“The economy is not working – growth is the missing ingredient in this economy,” Reeves told reporters, laying out plans to “drive better returns for retirement savers.” [drive] more capital in fast-growing companies.”

Their comments suggest a growing political consensus on the need to find new ways to channel savings into businesses that could boost Britain’s flagging growth rate.

As the election approaches, both Labor and the Conservatives are leaning heavily on the private sector to boost investment as they face severely strained public finances.

In addition to a systems review, Reeves outlined plans to pursue several recent government policy initiatives aimed at injecting more pension money into the UK economy, including stronger powers for the regulator to lock out underperforming pension schemes.

In July, Hunt unveiled the so-called Mansion House deal, which commits nine of the UK’s largest DC pension providers to a target of investing at least 5 percent of their “standard” or most popular funds in unlisted stocks by 2030.

Hunt hopes to allocate around £50bn of DC cash to unlisted assets such as unlisted companies by 2030, offering potentially higher returns but also higher risk if the wider sector follows suit.

Labor wants to “build on” its reforms by setting up a government-backed pension fund scheme in Washington, DC, to invest some of its assets in UK growth assets alongside the British Business Bank, the government’s economic development investor.

Hunt’s contract did not name any signatories to invest in the UK, which Reeves described as a “missed opportunity”. Significantly, Reeves did not suggest forcing funds to invest in UK assets, saying: “I don’t think it’s the right thing to mandate.”

Labor did not announce a target for pension investment in the UK, but unions welcomed efforts to channel more pension investment into the domestic economy. The party estimates its reforms could allow the average saver to earn an extra retirement income of between £21,000 and £37,000.

The Trades Union Congress, the umbrella body of the UK trade union movement, said: “The lack of measures in the Mansion House proposals to ensure additional money is invested in UK businesses and projects for ‘productive finance’ was one of the biggest problems. ” Defects.”

“If workers’ pension contributions were channeled into investments that gave them better returns and boosted the UK economy, it could be a win-win situation,” it added.

Reeves also accused the government of burdening working households with tax increases and being responsible for weak economic performance, with the Bank of England forecasting zero growth next year.

The Institute for Fiscal Studies think tank has predicted that UK tax revenues will rise Reached 37 percent of national income next year when elections are expected, compared to 33 percent at the time of the last poll in 2019.

Labor accuses the Conservatives of pushing through 25 tax increases in the current parliament, including raising the main rate of corporation tax and freezing income tax and national insurance thresholds.

“More taxes is not the way to stimulate the economy – my priority is providing tax relief to working people,” Reeves said, adding that she “wouldn’t make any tax cut promises unless I can say where the money is going.” flows.” come out”.

In response, a Tory official said Labor had “no foothold” given tax rises in its last government and that the party’s borrowing plans “will almost certainly result in higher taxes for working people”.