Chancellor Rachel Reeves is taking steps to transform the UK pension system by looking into a “Canadian-style” model. She aims to tap into the enormous investment potential of the £360 billion local government pension scheme, which currently consists of 86 individual funds in England and Wales. If consolidated into a single fund, it would rank as one of the largest funds globally.
Reeves is inspired by the success of the Canadian pension schemes, known as the Maple 8, which have the capacity to invest significantly in productive assets such as vital infrastructure. By emulating this model, she hopes to boost the UK market and promote growth. However, the process of achieving consolidation poses a significant challenge, as seen in the slow progress made by former Conservative chancellor Jeremy Hunt.
To facilitate this transformation, Reeves has initiated a review overseen by the new pensions minister Emma Reynolds. The objective is to explore ways to consolidate pension schemes and leverage them to drive UK growth. A proposed pensions schemes bill aims to establish a “value for money framework” to enhance outcomes for savers. While there is an ongoing debate on mandating UK funds to invest in specific asset classes, Reeves’s focus remains on the fiduciary duty of schemes to act in the best interest of their members.
Reeves has advocated for the merger of smaller schemes with assets below £200 million, suggesting that they may not be fulfilling their fiduciary responsibilities effectively. While the Canadian pension model offers valuable lessons, particularly in infrastructure investment, Reeves is cautious about imposing investment requirements on UK funds. She aims to see pension assets utilized for acquiring equities and supporting infrastructure projects to generate better returns for savers and stimulate economic growth.
During her visit to the US and Canada, Reeves emphasized the importance of partnerships between the government, industry, and regulators to drive growth. She met with Mark Carney, former Bank of England governor, to discuss strategies for investing in Britain’s clean technology sector. Despite speculation about changes to national insurance contributions for pensioners working past the age of 66, Reeves clarified that there are currently no plans to implement such adjustments.
In conclusion, Chancellor Rachel Reeves is committed to reshaping the UK pension system by drawing inspiration from successful models like Canada’s. By focusing on consolidation, strategic investments, and partnerships, she aims to enhance returns for savers, promote economic growth, and ensure the long-term sustainability of the pension system.
