Can Pensions unlock Labour’s mission for growth?

Just over two weeks on from the budget, the Chancellor will deliver her first Mansion House speech tonight to set out her vision for the financial services sector. With the disquiet over the budget growing within business circles after the various tax rises, most notably employer National Insurance contributions, tonight’s speech provides Reeves with a welcome opportunity to take back control of the agenda, outline the government’s vision for growth and reassure businesses that the government are committed to creating an environment where they can thrive.

Her first step has been to announce the creation of pension megafunds, which Reeves believes will unlock long term capital and secure investment in infrastructure – these reforms are designed to ensure “the assets under management work better for the UK economy and work better for savers”. The Treasury have said these changes could unlock £80 billion of investment for infrastructure projects and businesses of the future. Currently, Local Government Pension Scheme in England and Wales are split across 86 different authorities, these will now be consolidated into a handful of megafunds, Reeves has reportedly decided not to put them all into one pot.

Reeves has taken inspiration in this approach from Australia and Canada. She visited Canada in August and met with the ‘Maple 8’ group of Canadian retirement funds. After the meeting she said “I want British schemes to learn lessons from the Canadian model and fire up the UK economy, which would deliver better returns for savers and unlock billions of pounds of investment”.

While there were suggestions that she could extend the reforms by forcing pension funds to invest in British firms, she has instead decided to require each fund to have a target for UK investments. Reeves has also responded to criticism that the Australian approach is successful because they offer tax breaks to funds that invest in domestic companies, by reiterating that “we already have very generous tax breaks”.

These measures build on the work of the previous government, but Reeves has stated her intention to go further in this area and the government will be legislating for these reforms in this Parliament through a new Pension Schemes Bill. This Bill, expected in Spring 2025, will create the megafunds through consolidating defined contribution schemes and pooling assets from 86 separate Local Government Pension Scheme authorities.

The former Chancellor, Jeremy Hunt, welcomed many of the proposals put forward by the Chancellor but he did criticise the failure “to set up portable pension pots that automatically follow you from job to job as the default”. He added that this approach “has been spectacularly successful in boosting savings and retail investment in Australia”.

Beyond pensions, Reeves will also look at the issue of regulation in financial services. Following on from the Prime Minister’s comments at the International Investment Summit last month, where he highlighted the need to get rid of regulation that “needlessly holds back investment”, Reeves is expected to flesh out what the government are looking for from regulators. It was confirmed at the Budget that she will be publishing her remit letters to the financial services regulators and these are expected to bring to life her desire for them to regulate for growth and take a closer look at the secondary objective, which supports the international competitiveness and growth of the UK economy in the medium to long term.

 Reeves is also likely to tackle the issue of free trade in response to the election of Donald Trump. Reeves has previously outlined her vision of ‘securonomics’ – linked closely to Biden’s economic policies – and believes the key to this is the UK economy being more resilient in terms of our exposure to shocks, such as energy prices recently. She is expected to express her belief that free and open trade is what makes countries richer in contrast to Trump’s approach, which is more protectionist.

In a packed speech, reports have suggested that Reeves will outline her vision for the future of Britain’s payments infrastructure, provide further detail on the government’s plans around blockchain technology, modernise the Financial Ombudsman Service and unveil plans for the world’s first private stock market.

Reeves has made clear she wants to shift the narrative from the difficult decisions made at the Budget and provide a more uplifting picture on growth and the desire to invest through these pension reforms will go a long way to making Labour’s growth mission a reality.