King’s Speech: Pension schemes to be merged into ‘superfunds’ under Reeves’ shake-up

Pension schemes will be pushed to pool their assets in “superfunds” as part of government plans to divert more of the country’s retirement cash into the economy and boost returns for savers, ministers have announced.

In the King’s Speech today, Sir Keir Starmer set out plans to introduce a pension schemes bill over the next session of parliament that will aim to deliver “better outcomes” from pension savers and “support the government’s mission to deliver growth”.

Central to the plans will be a push to bring more of the UK’s fragmented pension system into consolidated superfunds in a bid to unlock investment into a wider range of assets, the government said. 

“Pension schemes can, and do, play a significant role in supporting the UK economy but there is potential for them to play a more significant role,” the government said in a document, released alongside the King’s Speech.

While ministers of both parties have been searching for ways to liberate more cash from the pension system in recent years, the fragmented nature of the market has been seen as a roadblock to investment flowing into assets like infrastructure and growth companies.

Legacy defined benefit schemes, which pay out a set amount to savers in retirements, hold around £1.4trillion across around 5,000 pension schemes around the UK. 

Ministers will now be looking to bring those schemes together as part of Rachel Reeves’s plans to use pension money to kickstart a wave of investment into infrastructure projects and growth companies.

Consolidation of the system is seen as a key lever in unlocking investment and would mark a shift towards the systems of countries like Canada and Australia, whose mammoth retirement funds are often pointed to as examples for the UK to follow.

A dearth of investment from the sector has been a bugbear of those in the City, who claim more of the trillions of pounds of pension cash should be put to work in British companies. Over the past 20 years, pension funds’ holding of the UK’s stock market has cratered from around 39 per cent to four per cent.

Speaking with City A.M. last week, the boss of FTSE 100 asset manager Schroders, Peter Harrison, called on Reeves to accelerate more consolidation in the sector to revive investment in the stock market and private companies.

Her plans fall in step with those of Tory predecessor, Jeremy Hunt, who threatened “further action” against pension schemes that were not backing more British equities. Hunt also corralled ten of the UK’s top pension money managers to commit to investing five per cent of their assets to growth 

However, it is currently unclear whether Reeves intends to press on with Hunt’s plans to force pension funds to disclose the geographic mix of their investment, as revealed in the previous government’s budget in March.

The government said today its plans were “designed to increase the amount available for pension savers” and could help an average earner to save over £11,000 more in their pension pots for retirement.

As part of the bill, Labour will look to ease the way that savers can consolidate their individual defined contribution pension pots, and a new ‘value for money framework’ will also introduce a test to ensure that defined contribution schemes deliver value.