UK pensions reform could unlock £4.6trillion to boost British economy and improve returns | Personal Finance | Finance

A change to Britain’s pension system could provide vital funding for the British economy to provide better returns for pensioners and help technology companies, two industry experts have claimed.

After the death of newspaper mogul Robert Maxwell, the retirement industry experienced a massive increase in red tape during the 1990s. It was prompted by the discovery that £460 million had been fraudulently appropriated from the Mirror Group’s pension fund to support Mr Maxwell’s debt-laden companies.

The actions taken meant the end of an era for UK pensions as funds became more risk averse and less exposed to the stock market and early stage companies.

But Nausicaa Delfas, the new head of TPR, Britain’s workplace pensions regulator, told Professional Pensions Live: “I want action – we need to work together to make the system the best it can be for savers. We need to do this so that pensions deliver a pot that enables savers to have confidence, empowerment and security later in life.

We need to do this to support savers when they come to use their money. And we need to do this to make the withdrawal process clearer and more accessible, and to ensure we protect savers from scams, bad advice and lost value.”

She urged the industry to “change their mindset,” from low costs first to value first.

This red tape controls every aspect of how savers’ money is invested, from strict accounting regulations to limits on the types of assets that can be held. As a result there is much more control over what pension funds can invest in

However, experts argue that reform could create billions of pounds of capital to help Britain’s economy recover from the pandemic.

Michael Eakins, chief investment officer at FTSE 100 pensions business Phoenix Group, explained that removing the strict rules will create an environment where new companies can be “founded in the UK, developed in the UK and listed in the UK”, boosting the economy and creating jobs in the process.

Mr Eakins said: “Over the past decades, there has been a constant and ongoing imbalance of UK pension funds and insurers and it is obviously a cause for concern. That concern is manifesting itself in terms of the impact on the UK economy and the position of the UK economy as a place where companies want to come, start up and evolve.”

Nigel Wilson, chief executive of Legal & General (L&G), the UK’s biggest pensions manager, blamed the imbalance campaign on new accounting rules introduced after Maxwell’s death and Gordon Brown’s decision to impose higher taxes on dividends .

The Telegraph reported that Mr Eakins and Mr Wilson are calling for a cultural change to accept more risk in the UK pensions industry to create more for the economy.

The New Finance report shows that UK pension funds’ allocation to bonds has quadrupled to 56 per cent over the past 25 years.

The bond offering heralded a new era of “liability-driven” investing (LDI), which was considered a safe and harmless strategy until Kwasi Kwarteng’s mini-budget debt prices collapsed last year, leaving several retirement schemes on the brink . collapse.

However, FTSE 250 chief executive Hendrik du Toit believes now is the time for them to take higher risks.

He explained how their home regulators have given Canadian and Australian funds more freedom to invest in high-risk asset classes such as listed and early-stage companies, venture capital and private equity, with generally positive results. .

Despite speculation about the benefits of less regulation of the UK pension system, Chancellor Jeremy Hunt has not decided whether he should tell fund managers where to put some of their capital. invest.

Morten Nilsson, chief executive of BT Pension Scheme (BTPS), said: “Pension schemes must have the freedom to invest in the best way to meet the needs of scheme members. Trustees have a duty to members and must select the most appropriate investments regardless of geography.”

In the autumn, Hunt will give a speech on pension reforms that are likely to include plans to consolidate the fragmented industry, bringing it in line with the likes of Canada.

Wilson concluded that Britain needs to be more ambitious and set its sights higher than being more attractive than the European Union. The UK lost the tech bubble in 2000 when many of today’s companies were founded and accelerated.

He explained that America had a large number of businesses of scale and the UK had none.

He said: “Being better than Europe should not be the benchmark. A European capital market is not the same as New York or London or Hong Kong, so we have to [the system] perform much better.

“We have to compete on a global level and the UK and London are falling behind.”