This speech, delivered at the PLSA Conference in Edinburgh, focused on the future of pensions, investment strategies, and the role of pension schemes in economic growth. The speaker emphasized enhancing pension returns, investment in productive assets, and policy reforms to strengthen the pension system.
Key Themes & Takeaways
1. The Importance of Edinburgh in Financial Services
- Edinburgh is a major financial hub, outperforming Manchester and Birmingham in productivity.
- The city’s role in pensions and financial services is critical to the UK economy.
2. Strengthening the Pension System
- Defined contribution (DC) schemes must focus on returns for savers, not just costs or contribution levels.
- The best pension landscape maximizes savings growth while boosting economic investment.
Pension Fund Consolidation & Scale
3. Fewer, Bigger, Better Pension Schemes
- Consolidation of pension schemes is essential to increase investment capacity.
- Larger pension schemes can:
- Invest in more productive assets (infrastructure, private equity).
- Lower costs and increase bargaining power.
- Act as active shareholders, ensuring long-term corporate growth.
4. Value for Money Framework
- Employers must focus on value for savers, not just cost-cutting.
- The new framework will increase transparency and investment returns.
Increasing Productive Investment
5. Pension Funds & Economic Growth
- UK pension funds invest too little in infrastructure (3%) and private equity (0.5%).
- Comparisons:
- Canada invests 11% in infrastructure.
- Australia invests 5% in private equity.
- Increasing these investments can boost pension returns and stimulate economic growth.
6. Encouraging More Investments in the UK
- Aiming to increase investments in startups, infrastructure, and high-growth sectors.
- The British Growth Partnership will connect VC opportunities with pension funds.
- Upcoming 10-year infrastructure strategy will highlight key investment projects.
Policy & Legislative Updates
7. Local Government Pension Scheme (LGPS) Growth
- The LGPS is projected to reach £1 trillion by 2040.
- Consolidation efforts are ongoing, with March 2026 as the deadline for reforms.
8. Pension Investment Review & Legislation
- Investment Review will be finalized in coming weeks.
- The Pensions Bill will be introduced before summer recess.
9. Defined Benefit (DB) Surplus Flexibility
- £1.2 trillion in DB schemes can release resources safely to businesses and members.
- The Pension Protection Fund (PPF) may reduce levies collected from pension schemes.
Addressing the Pension Challenges of Today
10. The Changing Pension Problem
- 1990s Problem: Ensuring pension security for employees in case of employer collapse.
- 2000s Problem: Low pension savings due to the decline of DB schemes → Auto-enrolment solved this.
- Today’s Problem: Increasing investment returns to provide a better retirement standard.
11. Focus on Higher Returns, Not Just Higher Savings
- The priority is improving returns, not just increasing contributions.
- Phase 1: Lowering costs & securing better investment options.
- Phase 2: Reviewing adequacy of pension contributions.
- The government is committed to long-term pension reform.
- Higher investment returns will benefit both savers and economic growth.
- Progress is already underway, and the government aims to continue working with the industry.
“We are making good progress. I look forward to answering this challenge with all of you in the months and years to come.”
