Jeremy Hunt will promise a £1,000-a-year pensions boost to the average earner with reforms to get pension funds making riskier investments in start-ups.
He will use his first Mansion House speech as Chancellor to set out plans to increase returns for pensioners while supporting high-growth firms and driving economic growth.
In the set-piece address to the City of London on Monday, he will hail an agreement with leading pensions firms to put 5% of their investments into early-stage businesses in the fintech, life sciences, biotech and clean technology sectors by 2030.
British pensioners should benefit from British business success— Jeremy Hunt
While UK pension pots are the largest in Europe, worth £2.5 trillion, defined contribution schemes currently only invest 1% in unlisted equity, limiting returns for savers and funding for businesses, according to the Treasury.
The changes, dubbed the Mansion House Reforms, could help increase the retirement savings of a typical earner who starts saving at 18 by 12% over their career, or over £1,000 more a year once they stop working.
It could also unlock £50 billion of scale-up investment if the rest of the industry follows suit, according to the Treasury.
Aviva, Scottish Widows, Legal & General, Aegon, Phoenix, NEST, Mercer, M&G and Smart Pension are taking part.
Pensions firms welcomed that Mr Hunt was not making the move mandatory, as the industry had warned against.
They will be expected to make investment decisions on the basis of long-term returns, while underperforming pension schemes will be wound up by the regulator, Mr Hunt will also say.
The Government will incentivise investment vehicles to enable schemes to put money into unlisted companies.
The Chancellor said: “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career.
“This also means more investment in our most promising companies, driving growth in the UK.”
The Lord Mayor of the City of London, Nicholas Lyons, said he is “proud to have convened key industry players to make this commitment” to allocating more assets to unlisted equities.
He will say in a speech that the move “will ensure high-growth firms in sectors like fintech and biotech can stay and scale in the UK, and support the development of much-needed new sustainable infrastructure in areas of the country that have felt left behind, while improving the retirement incomes of millions of UK pension savers.”
Mr Hunt will pledge to prioritise a “strong and diversified” gilt market, meaning he will not force firms to favour riskier investments over the low-risk ones offered by the Government.
He will also set out a “golden rule” of never making changes that “compromise” the UK’s position as a leading financial centre.
The Government will consult on doubling the existing local government pension scheme allocations in private equity to 10%, and accelerating the transfer of their assets into pools exceeding £50 billion.
The Chancellor will also set out plans to strengthen London’s position as a listings destination, including by simplifying the prospectuses companies must produce to raise cash.
He will announce the repeal of nearly 100 pieces of retained EU law for financial services to streamline the UK’s regulatory rulebook.
GlaxoSmithKline chairman Sir Jonathan Symonds said: “The changes will help increase investment returns for pension savers through improved access to all asset classes including in high growth sectors, and ensure the UK’s most innovative companies are better supported by UK capital to stay in this country as they scale to maturity.”
Brent Hoberman, co-founder and executive chairman of the Founders Forum, said: “This should be welcome news to the UK industries of the future, their ability to attract more capital will create more national champions and generate growth, jobs and increased tax revenue.”
