Emma Reynolds, the UK’s pensions minister, has left the door open to forcing pension schemes to invest more in British assets if reforms fail to boost savings in domestic infrastructure and companies.
The government announced this week that it would create a series of “mega funds” to drive a further £1.3tn of UK’s defined contribution and local authority pensions industry into productive household finance.
Reynolds said that while ministers had not taken steps to force pension funds to invest in British assets, it would be “necessary” again if the measures did not boost pension investment in the UK. can consider
“We’re not talking about it right now, but let’s see where we end up,” Reynolds said in an interview with the Financial Times. “Investment in pensions, as you know, is very generously provided for in terms of tax relief.”
Reynolds added that the decision on whether to take further steps to over-allocate the UK “will be left to the second part” of the pension investment review.
The government has put forward proposals to create pension asset pools of at least £25bn in local government and defined contribution pension schemes, which are said to release up to £80bn of private capital for infrastructure. And the business will be expanded.
Reynolds said she was being realistic and was not saying most of the additional investment should go into British assets, but added: “I need more than that to come to the UK at the moment.”
Compared to other pension systems, UK pension savers have relatively little exposure to their home market.
Just 4.4 per cent of UK pensions are held in home equity, well below the global average of 10.1 per cent. In private markets, DC schemes allocate just 2 per cent to unlisted British equities and infrastructure, rising to just 10 per cent for local government pension schemes.
“We are an outlier in terms of our pension schemes,” said Reynolds. “We want more UK pension investment in our economy”.
His warning came as the government announced the most radical change to the UK pensions industry since the so-called “pension freedoms” changes of 2015. It allowed people above the age of 55 to withdraw cash from their funds.
At the heart of Reynolds’ plan to invest more in the UK are proposals for the 86 councils of the Local Government Pension Scheme in England and Wales to hand over all their assets – and investment decision-making – to one pool of eight assets. . March 2026.
“What we mean by pooling and how you pool and the assets you have should be managed at the pool level because that’s going to give better returns,” Reynolds said.
Town Halls – forecast to manage £500bn of pension savings by 2030 – began consolidating assets in 2015, but a lack of guidance on how the pools should operate has slowed the pace of adoption and varied models. led to a range of
“We want to professionalize the pools and drive economies of scale. . . . The bigger the pools, the better the governance, the better deals they can drive,” he said.
Some in the pension industry disagree. Quinton Marshall, head of the Kensington and Chelsea Council Pension Fund, the best performing LGPS fund over the past five years, said: “I don’t buy the idea that economies of scale are needed to drive a car. .I think they will create a big bloated quango.
The government is also ignoring DC workplace pension schemes, which manage the retirement savings of most private sector workers and are expected to manage £800bn by the end of the decade.
Reynolds said assets of £25bn would be the “minimum” for multi-employer schemes. “The overall approach is run less, bigger, better. Pension schemes that can drive better deals, reduce costs and benefit from economies of scale.
These proposals are expected to trigger a wave of integration into workplace pension schemes.
Reynolds said the government was working to ensure there were enough attractive assets in the UK to invest in pension schemes with the help of the National Wealth Fund, the British Business Bank and a major overhaul of planning rules. .
It was “difficult to say” whether pension schemes would have done better if they had invested as they would have in the previous decade – because it was about larger funds with greater exposure to private equity and infrastructure.
But she was adamant that savers’ outcomes remained at the heart of the government’s plans.
“Obviously they have a fiduciary duty to the master trust and a consumer duty to the contract and all sorts of other requirements to make the best investment for their members. . . . Will stay,” he said.
“I’m not an investment manager – I’m a politician – I’m not going to tell them how to invest. But we want them to think about value over time rather than you know. How much is it going to earn this year?
Asked why chancellor Rachel Reeves had decided not to save some money by cutting the maximum tax-free lump sum of £268,275 in her budget, Reynolds said: “We didn’t go down that route.
“We have to strike the right balance here between raising revenue and also making sure that the right incentives are in place for people to save for the long term.”
