The U.K. plans sweeping pension reforms and tax breaks, to combat a significant cost-of-living crisis and economic stagnation. U.K. Chancellor of the Exchequer Jeremy Hunt, of the governing Conservative Party, announced the changes Wednesday in his Autumn Statement to Parliament that included “a package of measures to reform the pensions market to unlock investment into high growth sectors and generate increased returns for savers.”  

The statement was delivered to Parliament on Wednesday, followed by a response from Shadow Chancellor of the Exchequer Rachel Reeves, of the opposition Labour Party. 

New Laws for Pensions  

Plans to grow the British economy included Hunt’s proposals for changes to the European Union’s Solvency II regulatory regime for insurers to attract more investment from pension funds and insurance companies into U.K. infrastructure projects.  

A range of pension reforms are planned as part of efforts to increase investment in U.K. business and improve business productivity. 

“Pension reforms … have the potential to make more pension scheme funding available to finance business investment,” according to Hunt’s statement. “This could result in an additional 75 billion pounds [$95.65 billion] of financing for unlisted equity investment.”  

Among the pension reforms, the government is encouraging continued consolidation among defined contribution pension funds and “expects to see a market in which the vast majority of savers belong to schemes of 30 billion pounds or larger by 2030.” 

In addition, the government is seeking information on plans to “simplify the pensions market by allowing individuals to move towards having one pension pot for life, and on a potential expanded role for collective defined contribution schemes in future. The government will also introduce the multiple default consolidator model to enable a small number of authorized schemes to act as a consolidator for eligible pension pots under 1,000 pounds.” 

In addition, the government announced it will launch an initiative to tackle the issue of “small pot” pensions, exploring the idea of a “lifetime provider model” whereby employers can have contributions paid into their existing pension scheme when they change their employer.  

Hunt’s statement outlined plans to “increase opportunities for defined benefit schemes to invest in productive finance while fully protecting member benefits.” and announced the government will launch a consultation this winter on “how the Pension Protection Fund can act as a consolidator for schemes unattractive to commercial providers.” 

Barry Kenneth, CIO of the Pension Protection Fund, says via email that the group welcomes the government’s “commitment to establishing a new investment vehicle for consolidating smaller DB schemes by 2026” and that the PPF is well placed to take on this new role. 

“Our existing investment approach already provides a blueprint for how the government’s objectives can be achieved at scale, and a recent independent review recognized that our investment team has built up significant expertise and achieved strong returns,” Kenneth says. “We look forward to working with government and industry on the design of the new vehicle and its investment mandate.”  

Seeking Science and Tech Innovation 

In addition to the consolidation, Hunt announced government pension fund payouts will increase by 8.5% in April 2024.  

Among several measures, Hunt’s statement also announced plans to increase opportunities for pension funds to invest in “the U.K.’s most innovative companies” in an effort that could generate more than 1 billion pounds from pension funds for science and technology companies. The statement outlined a plan for the government to “commit 250 million pounds to two successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative.”  

The government also confirmed plans to establish a growth fund within the British Business Bank to “to give pension funds access to investment opportunities in the U.K.’s most promising businesses. A new Venture Capital Fellowship will help produce the next generation of world-leading investors in the U.K.’s renowned venture capital funds.” 

Regarding the reforms to regulations for insurers, Hunt said the government is working with legislators to create a simpler and clearer system to “boost economic growth by incentivizing private investment for productive assets, such as infrastructure. Industry have committed to investing over 100 billion pounds in a greater range of productive assets over the next decade as a result.” 

Other pension-related measures in the Autumn Statement included plans to prioritize long-term pension investment performance ahead of low fees and a response to the prior consultation on the Local Government Pension Scheme. The statement confirmed that the government will revise LGPS guidance to include “a 10% allocation ambition for investments in private equity, which is estimated to unlock 25 [billion pounds]” and set a March 2025 deadline for “the accelerated consolidation of LGPS assets into pools, and setting a direction towards fewer pools exceeding 50 billion pounds of assets under management.” 

Investing Beyond Pensions 

The Autumn Statement also outlined plans to increase investments into U.K. startups and businesses. The government will make 4.5 billion pounds available to “strategic manufacturing sectors,” including automotive, aerospace, life sciences and clean energy, from 2025 through 2030.  

Hunt announced that the Enterprise Investment Scheme and the Venture Capital Trust, two tax exemptions given to companies that invest in startups, will be extended through 2035.  

“The announcement that the government is extending the VCT and EIS sunset clauses out to 2035 is good news for two schemes that have supported billions of pounds worth of investment into U.K. start-ups,” said Nicholas Hyett, an investment manager at Wealth Club Ltd., in a statement distributed to clients. “It removes uncertainty that has been lingering over the sector for some time, potentially putting off new entrants and new investors, and secures a crucial source of funding for the U.K.’s blossoming startup scene. It is a shame that the sunset clause hasn’t been abolished altogether—which would have avoided a repeat of the current uncertainty in a decade’s time—but with the Labour Party also voicing support for the schemes, the extension is welcome nonetheless.”  

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Tags: Autumn Statement, Barry Kenneth, Nicholas Hyett, Pensions, United Kingdom