Latest news with #PensionsInvestmentReview
Yahoo
2 days ago
- Business
- Yahoo
Government 'megafund' pension plans could give £6k boost to savers
Plans to double the number of UK pension "megafunds" by 2030 could see workers get a £6,000 boost to their retirement pot, the government has said. The UK Treasury confirmed plans on Thursday to expand the number of UK pension megafunds in the next five years. Under reforms set to be introduced through the Pension Schemes Bill, the government said that multi-employer defined contribution and local government schemes will pool to operate at megafund level, managing at least £25bn in assets by 2030. The Treasury said that evidence from Australia and Canada showed that this size enabled pension funds to invest in large infrastructure businesses and private businesses, both boosting the economy and potentially driving higher returns for savers. The government said that this would help drive more than £50bn in investment for UK infrastructure, new homes and fast-growing businesses. This comes on the back of the government's recent announcement of a new agreement, known as the Mansion House Accord, in which Britain's biggest pension funds committed to invest 5% of assets in the UK. On Thursday, the government also published the final report from its Pensions Investment Review, setting out its final policy decisions following on from feedback provided to its consultation. It said that figures from the report showed that these reforms would drive higher returns for savers, "in part by cutting waste in the system". Read more: Trending tickers: Nvidia, Salesforce, HP, Tesla and M&S According to the Treasury, these schemes could be saving £1bn a year by 2030 through economies of scale and improved investment strategies. As a result, the government said average earner who saves over their career could see a £6,000 boost to their defined contribution pension pot. That's based on its estimate that this megafund consolidation could deliver at least a six-basis-point reduction in fees, as well as an increase in allocations to "productive" assets such infrastructure projects. "We're making pensions work for Britain," said chancellor Rachel Reeves. "These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses — the Plan for Change in action." Meanwhile, deputy prime minister Angela Rayner said that the "untapped potential of the £392bn Local Government Pension Scheme is enormous. Through these reforms we will make sure it drives growth and opportunities in communities across the country for years to come" In Thursday's announcement, the Treasury also said that a "backstop power [is] set to be taken in the Pension Schemes Bill to protect the interests of LGPS [local government pension scheme] members and local taxpayers where necessary by directing an administering authority to participate in a specific investment pool." According to a Financial Times report, officials confirmed that this could include specific targets to UK assets. A spokesperson for the Treasury had not responded to Yahoo Finance UK's request for comment at the time of writing. Matt Tickle, chief investment officer at Barnett Waddingham, said: "The main concern for schemes following the government's wide ranging pension announcements is the looming threat of 'mandation'. "While the chancellor's 'backstop' power – which could compel funds to back British assets – appears to have deterred that threat for now, any move towards mandated investment is a blunt tool, leaving members and society as a whole at risk of poorer outcomes." "That said, the fact that there is time gives some of the government's better policies, around planning reform, value for money and retirement pathways more space to succeed," he added. "If they do, they could generate opportunities that pension schemes will willingly invest in. Efforts to improve the flow of investable opportunities are certainly positive, however there is still an urgent need to focus on reforms rather than enforcing mandates." Helen Morrissey, Yahoo Finance UK columnist and head of retirement analysis at Hargreaves Lansdown, said: "While scale is important in delivering better outcomes for savers, it must not come at the cost of reducing competition, member choice and much needed innovation. This has the ability to really drive up member engagement with their pensions, improve decision making and boost outcomes." "It's important to pick through the detail of the report and later regulation to see how this is supported," she said. "For instance, detail needs to be fleshed out on how the transition pathway for providers looking to reach scale by 2035 will work. "If the market is to thrive, then there needs to be space for smaller, innovative providers. It's a lesson learned in the retail banking market where competition from smaller challenger banks has put pressure on larger incumbents to improve user experience and product offerings." Read more: Odds of more Bank of England interest rate cuts fall as food inflation rises UK 'bargain' stocks that have outperformed the market long-term Trump tariffs to hit UK economy next year, says IMF
Yahoo
3 days ago
- Business
- Yahoo
Labour accused of unleashing ‘stealth tax' on pensions
Labour is preparing to unleash a 'stealth tax' on pensions, critics have warned. The new Pension Schemes Bill will give the Government the power to force pension funds to invest in British assets to help spark growth. Yet critics of the reform argue the change, laid out in the Treasury's Pensions Investment Review published Thursday, risks lower returns for savers. Pension industry experts also called into question government claims that the package of reforms could leave retirement savers £6,000 better off. Tory MP Neil O'Brien called the plans 'a massive stealth tax' and said pension savers will 'get lower returns' so the Government can reduce its borrowing costs. Mel Stride, the shadow chancellor, said the move was an extraordinary overreach. He said: 'Labour is crossing the Rubicon into directing the public's savings. Pension pots are there to secure retirements, not to bankroll a government.' Last month major pension providers said they would voluntarily commit to investing 5pc of their total funds into UK assets by 2030. However, the new reserve power would go further and mandate how much of savers' money needs to go into UK plc. Experts within the industry have also thrown scorn on the plans. Tom Selby, director of public policy at AJ Bell, said the move 'puts a gun to schemes' heads and will create those mandatory targets in all-but-name'. Laura Myers, partner and head of DC pensions at consultancy LCP, said the threat of the Government telling trustees how they should invest was 'a step too far' that 'risks losing sight of the primacy of member interests'. James Carter, of investment firm Fidelity International, labelled the power to direct pension scheme investments in the future 'a concern'. Publication of the review follows the news this week that HM Revenue and Customs is exploring plans to tax pension contributions made via salary sacrifice work schemes. If implemented the changes would cost the average earner more than £500 a year in extra income tax and National Insurance – and whittle away their pension pot and their retirement potential. The Government has said that the changes within the new review will result in an additional £6,000 on average being added to an individual's pension pot over a lifetime of saving, as revealed by the Telegraph. However, Sir Steve Webb, a former pensions minister and now a partner at LCP, has said he would not 'put any weight' on the figure. He said that while lower cost pensions due to reforms could see savers add to their pots, the increase will only be marginal and there is a risk that costs actually rise, adding: 'Even the assertion that there will be overall cost savings is far from obvious.' Mr Selby added: '£6,000 isn't exactly a big potential 'gain' over the course of a retirement in return for the extra risk that is likely to be taken on. Entirely possible the gains will be higher but they could also be lower.' Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Yahoo
3 days ago
- Business
- Yahoo
Labour accused of unleashing ‘stealth tax' on pensions
Labour is preparing to unleash a 'stealth tax' on pensions, critics have warned. The new Pension Schemes Bill will give the Government the power to force pension funds to invest in British assets to help spark growth. Yet critics of the reform argue the change, laid out in the Treasury's Pensions Investment Review published Thursday, risks lower returns for savers. Pension industry experts also called into question government claims that the package of reforms could leave retirement savers £6,000 better off. Tory MP Neil O'Brien called the plans 'a massive stealth tax' and said pension savers will 'get lower returns' so the Government can reduce its borrowing costs. Shadow chancellor Mel Stride said the move was an extraordinary overreach. He said: 'Labour is crossing the Rubicon into directing the public's savings. Pension pots are there to secure retirements, not to bankroll a government.' Last month major pension providers said they would voluntarily commit to investing 5pc of their total funds into UK assets by 2030. However, the new reserve power would go further and mandate how much of savers' money needs to go into UK plc. Experts within the industry have also thrown scorn on the plans. Tom Selby, director of public policy at AJ Bell, said the move 'puts a gun to schemes' heads and will create those mandatory targets in all-but-name'. Laura Myers, partner and head of DC pensions at consultancy LCP, said the threat of the Government telling trustees how they should invest was 'a step too far' that 'risks losing sight of the primacy of member interests'. James Carter, of investment firm Fidelity International, labelled the power to direct pension scheme investments in the future 'a concern'. Publication of the review follows the news this week that HM Revenue and Customs is exploring plans to tax pension contributions made via salary sacrifice work schemes. If implemented the changes would cost the average earner more than £500 a year in extra income tax and National Insurance – and whittle away their pension pot and their retirement potential. The Government has said that the changes within the new review will result in an additional £6,000 on average being added to an individual's pension pot over a lifetime of saving, as revealed by the Telegraph. However, Sir Steve Webb, a former pensions minister and now a partner at LCP, has said he would not 'put any weight' on the figure. He said that while lower cost pensions due to reforms could see savers add to their pots, the increase will only be marginal and there is a risk that costs actually rise, adding: 'Even the assertion that there will be overall cost savings is far from obvious.' Mr Selby added: '£6,000 isn't exactly a big potential 'gain' over the course of a retirement in return for the extra risk that is likely to be taken on. Entirely possible the gains will be higher but they could also be lower.'
Yahoo
3 days ago
- Business
- Yahoo
Government 'megafund' pension plans could give £6k boost to savers
Plans to double the number of UK pension "megafunds" by 2030 could see workers get a £6,000 boost to their retirement pot, the government has said. The UK Treasury confirmed plans on Thursday to expand the number of UK pension megafunds in the next five years. Under reforms set to be introduced through the Pension Schemes Bill, the government said that multi-employer defined contribution and local government schemes will pool to operate at megafund level, managing at least £25bn in assets by 2030. The Treasury said that evidence from Australia and Canada showed that this size enabled pension funds to invest in large infrastructure businesses and private businesses, both boosting the economy and potentially driving higher returns for savers. The government said that this would help drive more than £50bn in investment for UK infrastructure, new homes and fast-growing businesses. This comes on the back of the government's recent announcement of a new agreement, known as the Mansion House Accord, in which Britain's biggest pension funds committed to invest 5% of assets in the UK. On Thursday, the government also published the final report from its Pensions Investment Review, setting out its final policy decisions following on from feedback provided to its consultation. It said that figures from the report showed that these reforms would drive higher returns for savers, "in part by cutting waste in the system". Read more: Trending tickers: Nvidia, Salesforce, HP, Tesla and M&S According to the Treasury, these schemes could be saving £1bn a year by 2030 through economies of scale and improved investment strategies. As a result, the government said average earner who saves over their career could see a £6,000 boost to their defined contribution pension pot. That's based on its estimate that this megafund consolidation could deliver at least a six-basis-point reduction in fees, as well as an increase in allocations to "productive" assets such infrastructure projects. "We're making pensions work for Britain," said chancellor Rachel Reeves. "These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses — the Plan for Change in action." Meanwhile, deputy prime minister Angela Rayner said that the "untapped potential of the £392bn Local Government Pension Scheme is enormous. Through these reforms we will make sure it drives growth and opportunities in communities across the country for years to come" In Thursday's announcement, the Treasury also said that a "backstop power [is] set to be taken in the Pension Schemes Bill to protect the interests of LGPS [local government pension scheme] members and local taxpayers where necessary by directing an administering authority to participate in a specific investment pool." According to a Financial Times report, officials confirmed that this could include specific targets to UK assets. A spokesperson for the Treasury had not responded to Yahoo Finance UK's request for comment at the time of writing. Matt Tickle, chief investment officer at Barnett Waddingham, said: "The main concern for schemes following the government's wide ranging pension announcements is the looming threat of 'mandation'. "While the chancellor's 'backstop' power – which could compel funds to back British assets – appears to have deterred that threat for now, any move towards mandated investment is a blunt tool, leaving members and society as a whole at risk of poorer outcomes." "That said, the fact that there is time gives some of the government's better policies, around planning reform, value for money and retirement pathways more space to succeed," he added. "If they do, they could generate opportunities that pension schemes will willingly invest in. Efforts to improve the flow of investable opportunities are certainly positive, however there is still an urgent need to focus on reforms rather than enforcing mandates." Helen Morrissey, Yahoo Finance UK columnist and head of retirement analysis at Hargreaves Lansdown, said: "While scale is important in delivering better outcomes for savers, it must not come at the cost of reducing competition, member choice and much needed innovation. This has the ability to really drive up member engagement with their pensions, improve decision making and boost outcomes." "It's important to pick through the detail of the report and later regulation to see how this is supported," she said. "For instance, detail needs to be fleshed out on how the transition pathway for providers looking to reach scale by 2035 will work. "If the market is to thrive, then there needs to be space for smaller, innovative providers. It's a lesson learned in the retail banking market where competition from smaller challenger banks has put pressure on larger incumbents to improve user experience and product offerings." Read more: Odds of more Bank of England interest rate cuts fall as food inflation rises UK 'bargain' stocks that have outperformed the market long-term Trump tariffs to hit UK economy next year, says IMF
The Guardian
3 days ago
- Business
- The Guardian
Will megafunds really put an extra £6,000 in the average pension?
Amid all the jargon of the government's latest announcement on pensions on Thursday, one number will have leapt out: the claim that the average worker will gain £6,000 in their retirement fund as a result. The proposed shake-up relates to defined contribution pensions, the funds that invest workers' regular payments in stocks, shares and other assets to grow the money. On retirement, workers get an income based on the value of their stake; the size of this income will depend on how much they have paid in and how well the investments have performed. Probably not. That figure is based on a specific set of assumptions, but it's not necessarily bad news. It comes from a report by the Pensions Investment Review, which says 'it is important to recognise the actual benefits will differ for all savers and may be higher or lower'. The £6,000 is based on the pension savings of a man on the median annual salary – currently £37,3822 – who works from age 22 to age 68 and pays into his fund throughout that time. His contributions are based on the minimum an employee must pay when auto-enrolled into a pension (4% of his earnings, matched with 3% from his employer and 1% in tax relief). The government says that after charges and investment growth, the man's fund would currently be worth £163,600 when he reaches retirement. It says changes to consolidate smaller schemes into pension megafunds would reduce charges and add £2,500 to his pot, while encouraging providers to invest in a wider range of assets could add £3,300. In total that would be £5,900 more to spend in retirement. In reality, the benefit would depend on how much charges actually fall by as a result of the new megafunds, how much the assets increased in value, and how much the person had in their pension. Women stand to gain less on average because they typically earn less – median earnings are £31,672 – and they are more likely to take career breaks and miss contributions. As the name suggests, megafunds are big schemes that will look after billions of pounds of workers' cash. Currently, there are no rules regarding the minimum sums that providers can manage. The government is concerned that this leads to lots of small schemes that may not have economies of scale, meaning higher charges for their members and potentially poorer investment outcomes compared with bigger schemes. It said on Thursday it plans to tackle this by bringing in a law that providers must have at least £25bn in invested assets by 2030, although there will be transition rules in place until 2035. The new rules will mean smaller schemes have to join forces. For an individual saving into a defined contribution pension either privately or via their employer, there may be changes in who administrates their savings scheme and – if the plans work – their charges should go down. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says that scale is important in delivering better outcomes for savers, but that 'must not come at the cost of reducing competition, member choice and much needed innovation'. She adds: 'If the market is to thrive, then there needs to be space for smaller, innovative providers. It's a lesson learned in the retail banking market, where competition from smaller, challenger banks has put pressure on larger incumbents to improve user experience and product offerings.' At the moment, although there are many other assets that they can buy, pension schemes' holdings are dominated by publicly listed global shares and bonds, because they are easy to trade. The government says that by making funds bigger it will make it easier for them to invest in a wider range of things, including private markets – these include infrastructure, property and loans to start-ups. These take longer to generate returns, even though the yields may eventually be higher. The government wants some of this money to be invested in the UK – and although lots of big providers have already committed to doing this – it says it will bring in a 'reserve power', which will let it set targets for private investments. Tom Selby, director of public policy at the advice firm AJ Bell, says the power 'essentially puts a gun to schemes' heads and will create those mandatory targets in all but name'. He adds: 'There is a clear danger that conflating government policy goals – namely driving higher levels of investment in the UK and ultimately economic growth – with those of savers and retirees means the latter will be risked in pursuit of the former. It is vital the needs of pension scheme members remain the priority.' Selby is sceptical about the reforms. 'Many of the claims about the benefits of these reforms to pension savers and retirees need to be taken with a fistful of salt,' he says. 'While there may be some efficiency benefits to consolidation, these are difficult to quantify with certainty and reducing competition in the market may stifle incentives to deliver innovation. In addition, private equity investing is notoriously high-cost and high-risk, meaning it is entirely possible people will end up worse off if those investments fail to perform over the long term.' However, Jonathan Lipkin, director of policy, strategy and innovation at the Investment Association, says the plans mark 'the beginning of a new era for the UK pension system'. He adds: 'With the greater resources available to larger pension schemes, investment expertise and governance can be strengthened to achieve sophisticated scale. This will give pension savers access to a wide range of asset classes and strategies that can both improve member outcomes and contribute to better capital allocation, including for the UK economy.'
