The chancellor, Jeremy Hunt, will reveal plans to release billions of pounds from British pensions to help fund fast-growing companies, as part of wider government efforts to boost growth and attract more business to the UK.
Hunt is expected to tell an audience of City leaders and chief executives on Monday that the government has reached a so-called “compact” deal with some of the UK’s largest investment firms that could see about 5% of pension fund investments reserved for early-stage businesses in sectors including life sciences and fintech.
“I want to lay out plans to enable our financial services sector to increase returns for pensioners, improve outcomes for investors and unlock capital for our growth businesses,” the chancellor is likely to say in his first Mansion House speech.
Hunt will tell bosses that the new proposals, referred to as the “Mansion House reforms” will be guided by three “golden rules”: to secure the best possible outcome for pension savers; to prioritise a strong and diversified gilt market – the funds from which are used to invest in public services; and to strengthen the UK’s position as a leading financial centre.
It follows industry meetings in recent months with some of the UK’s largest fund managers, including Aviva, Legal & General and Scottish Widows.
Some firms have expressed concern that the government could force the changes on fund managers, including those handling defined benefit schemes, which pay out final salaries and require more reliable income in the short term as their ageing members near retirement. Those schemes have increasingly turned to government bonds, known as gilts, rather than listed shares or riskier startups to fund their pensions.
However, it is understood the Treasury has largely backed down and instead opted for a voluntary pact that is primarily aimed at defined-contribution pension schemes. Defined contribution schemes do not guarantee a set income at retirement, and are the default plan for most UK workers, meaning new members continue to join and pay into funds.
The chancellor’s changes will also involve a “simplified” process for listing company shares on the London Stock Exchange, by altering the types of documents that companies have to produce for investors, and creating a new trading platform for private companies that will open on specific days and will not require a public floatation.
Chris Cummings, chief executive of the Investment Association, which represents firms managing £10tn-worth of assets, said: “The recognition of the central role of long-term investment is the foundation of successful policy.
“With the right regulatory framework, pension schemes will be able to invest productively and sustainably, unlocking further investment for innovative growth companies, and improving returns for savers by broadening investment options. In tandem with reforms to the listings regime, this will help the UK to become a more globally attractive place for companies to list, invest and do business.”
The changes in Hunt’s speech, which he will deliver at the lord mayor of London’s official residence, are in addition to the chancellor’s “Edinburgh reforms” – aimed at rolling back some EU and post-financial crisis regulations – and changes to the so-called Solvency II regulations that are intended to release money for UK infrastructure investments by reducing the amount of capital that insurers have to hold to prove they can pay policyholders in the long term.
