Chancellor Rachel Reeves used her maiden Mansion House speech to announce a package of reforms aimed at driving competition across financial services.
During last night’s speech (14 November), Reeves argued that regulatory changes have “gone too far” since the 2008 economic crisis.
She added that in places, these changes have had “unintended consequences which we must now address”.
Reeves also announced plans for “pension megafunds”, which she said could bring in £80bn to invest in businesses and infrastructure.
These wide-ranging reforms will be introduced through a new, recently announced Pension Schemes Bill next year.
The Bill will look to consolidate defined contribution (DC) schemes and pooling assets from 86 local government pension scheme authorities.
The aim of the new ‘megafunds’ will be to try and replicate schemes in Australia and Canada, where they typically invest in private markets with higher growth potential.
Reeves said: “Australian pension schemes invest around three times more in infrastructure investment compared to defined contribution schemes in the UK and 10 times more in private equity – including in high-growth businesses – compared to the UK.
“One of the key reasons for this is the much larger size of their funds.
“While our pensions landscape remains highly fragmented, that means many of our pension funds do not have the capacity to invest at the scale required.
“And more often than not, it is Canadian teachers and Australian professors reaping the rewards of investing in British productive assets through their pension schemes, rather than British savers.
“That’s not good enough, and we need to change that.”
She described the financial services sector as “the crown jewel in our economy”, but added that “we cannot take the UK’s status as a global financial centre for granted”.
Reeves also announced plans to “modernise” the Financial Ombudsman Service, which deals with complaints between consumers and firms.
Meanwhile, a pilot scheme will be launched to deliver “digital gilts” – tokenised government bonds issued on a blockchain – in a move to better embrace technology.
In addition, the chancellor has sent “growth-focused remit letters” to the Financial Conduct Authority, Prudential Regulation Committee, Financial Policy Committee and Payment Systems Regulator to push for a greater focus on growth.
Reeves also committed to publishing the first ever Financial Services Growth and Competitiveness Strategy in the spring.
She proposed focusing on five priority areas in financial services.
These are: financial technology; sustainable finance; asset management and wholesale services; insurance and reinsurance and capital markets.
Hymans Robertson head of pension policy innovation Calum Cooper said: “We fully support the plans on regulating for growth – the sentiment is to be applauded.
“Economic growth, however, is born of investment in enterprise and taking responsible rewarded risks. Our national risk appetite and culture needs to shift for us to grow, and it is good to see the government recognising that.”
Cooper said that, inadvertently, private sector DB pension regulations have played a big part in sucking the investments, risk culture and life out of the economy.
“These regulations have been designed to eliminate risk in paying past pensions, at the expense of adequate pensions and investment for future generations.
“While for pensions, DC and LGPS may be at the forefront tonight, on DB the clock is ticking.
“Over 50% of the schemes that we surveyed are waiting to decide whether to run on to share surplus or move on with insurance. Regulatory clarity is key.
“The government cannot delay taking action much longer to empower surplus sharing to improve outcomes for members, employers and the economy.”
Schroders group chief executive Richard Oldfield said: “It is great to see the government putting sensible risk taking back at the centre of our economy.
“Whether that’s on green finance, infrastructure, science or tech; firms like Schroders working in partnership with pension schemes, regulators and the government can unlock the potential of the UK for the benefit of all of us.”
The Investment Association director of corporate affairs Karen Northey said: “Ensuring our pensions system is fit for purpose will be mission critical in securing the financial futures of millions across our country.
“The proposals to further consolidate both the LGPS and DC master trusts are an important step.
“To fully realise the benefit, we must ensure that we deliver ‘sophisticated scale’ – placing an emphasis on strong governance, accountability and appropriate investment expertise to deliver the most productive outcomes and create value for money for savers.
She added that the chancellor’s announcements “mark the welcome start of a bold reform programme and we believe even more can be achieved”.
Does this mean that the unaccountable FCA will now become accountable to it’s true paymasters? I refer, of course, to the clients who unwittingly fund this bloated, sleepy watchdog via the burden of regulatory fees that are passed on to them by their advisers, custodians and fund managers.
Fat Chance!
The FCA won’t like that. Red tape and bureaucracy are its very life blood.
“Reeves said: “Australian pension schemes invest around three times more in infrastructure investment compared to defined contribution schemes in the UK and 10 times more in private equity – including in high-growth businesses – compared to the UK.”
Does that mean that Reeves is in favour of changing all public sector defined benefit schemes, including the multitude of local authority ones, to defined contribution?
Furthermore, I think one would find there are more defined contribution schemes,includingSIPPs, investing in private equity than there are public sector schemes.
Where is the detail? Reforms to financial services – what exactly? Are we going back to the days when banks advertised for people to take loans to go on holiday? What of the safety for savers and investors? Are we back to the days of the wild west?
Consolidation of DC schemes? Does she mean just AE? The investment returns of these are poor enough without the government meddling. As for self-directed pensions (Personal pensions, SIPPs etc) how dare she?! This is looking evermore like a Stalinist command economy, where free choice is constrained.
It seems the larger elements of the fund management industry are welcoming the push towards more under management – just like pushing for universal advice, sic, errm.. but, what about other factors, perhaps, more obscure….
Govt. has wasted Bnnnnns on infrastructure projects – from Teflon’ Twins’ NI, N. Health, anti sumarine (Nimrod replacement), to HS2…
PFI is a national scandal.. which has kept education and health poor through usary terms – like 18% per year on a Govt. guaranteed deal… so why not get pension funds to invest with other peoples’ money?
Fund managers are ivory tower enough, now they will have a fortress!
Added to this, is the drive towards higher return, early stage investment into Britain’s knowledge base. The words I have yet to hear are… and higher risk + lower liquidity – perhaps Reeves has not (yet) come across N. Woodford…
Just in case there are, err, errors… who is going to make up the losses? Given that the man in charge of PFI, and HS2 for long periods, is now the ‘cut the waste Czar’, things do not look too good.
The managers in the article forget to say that DB schemes are the gold standard, and look to remain solvent hence their approach to investing. The Pension Compensation Fund have been strangely silent so far! The University DB Trustees – the best in UK – have condemned the plan – BTW.
Reeves may still sleep at night however… an MP’s pension is index linked guaranteed, based upon the most generous years service deal in the land!