The UK’s chancellor of the exchequer, Rachel Reeves, has announced a landmark pensions review as part of the new government’s mission to “boost growth and make every part of Britain better off”.

Labour had promised to launch the pensions review as part of its manifesto prior to the UK’s general election and the industry has been awaiting this announcement since Labour’s landslide win earlier this month.

Under plans unveiled by the new chancellor this weekend, billions of pounds of investment could be unlocked in the UK economy from defined contribution (DC) schemes alone and pension pots for savers in DC schemes could be boosted by over £11,000.

The review will also, working closely with Jim McMahon, minister of state for the Ministry of Housing, Communities and Local Government (MHCLG), look at how to unlock the investment potential of the £360bn Local Government Pensions Scheme (LGPS), as well as how to tackle the £2bn that is being spent on fees.

The Pension Insurance Corporation (PIC) expects that the proposal to combine LGPS funds into a single national fund could unlock £40bn of investment in infrastructure.

The chancellor said the announcement is the “first phase” in reviewing the pensions landscape and will be led by the first-ever joint Treasury and Department for Work and Pensions (DWP) minister, Emma Reynolds.

Reeves said the next phase of the review starting later this year will consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy.

“Despite a very challenging inheritance, this new government is getting on with the job of delivering our mandate to get the economy growing so we can make every part of our country better off,” she said.

“The review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners. There is no time to waste. That is why I am determined to fix the foundations of our economy so we can rebuild Britain and improve people’s lives,” she added.

Reynolds added: “As the first-ever joint Treasury and DWP minister I am uniquely placed to tackle the twin challenges of productive investment and retirement outcomes.”

She said that over the next few months, the review will focus on identifying any further actions to drive investment that could be taken forward in the Pension Schemes Bill before then exploring long-term challenges to ensure the UK’s pension system is fit for the future.

“There is so much untapped potential in our pensions markets, with an industry worth around £2trn. The measures we have already set out in our Pension Schemes Bill will help drive higher investment and a better deal for our future pensioners,” Reynolds stated.

Pensions bill

Steve Webb, partner at LCP said that until now it had seemed that the Pension Scheme Bill included in the King’s Speech would include only a narrow range of measures such as the creation of a value for money (VfM) framework to drive DC consolidation, measures on consolidating micro pension pots, a legal framework for superfunds and new duties on pension scheme trustees to look after members after retirement.

He said the announcement suggested that if the pension review identified further measures to be introduced to “drive investment”, these could also be included in this Pension Schemes Bill rather than waiting at least 12 months for another bill in another King’s Speech.

Webb expects the measures that are most likely to receive a particular focus could include the use of the Pension Protection Fund (PPF) as a public consolidator and the potential to encourage defined benefit (DB) schemes to run on, rather than move to a de-risking strategy with an insurer.

Calum Cooper, head of pension policy innovation at Hymans Robertson said: “The focus on investments is a sound place to start: the emphasis being doing more with what we have and where political capital can be built, not spent. This is about pace, momentum and confidence in areas that do not cost money.”

He added that as part of the review, once the government has identified where investment is most needed, it must ensure this roadmap is clear and make it attractive to pensions. “The pensions and financial services industries will then be able to support it and align this approach with their long-term goals,” he said.

Emma Douglas, director of workplace savings and retirement at Aviva, welcomed the government’s “determination” to undertake a pensions review as an early priority.

She said: “We fully support the government’s ambition to get pension funds invested in a way that both supports UK growth and improves outcomes for savers. We see this as an important next step and look forward to working with government and industry on the review.”

Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy Nigel Peaple added that it was “positive” the government had acted quickly to initiate its promised review of the UK’s pensions savings system.

He noted that pension schemes already invest £1trn in the UK economy, and it is expected to grow as the DC system matures.

“With the right regulatory framework and government action to ensure a healthy pipeline of investible opportunities, we look forward to working with ministers to create a pension system that works for the country and for savers,” Peaple added.

Michelle Ostermann, chief executive officer of the PPF, said that pension consolidation, and a fresh approach, can unlock billions in new UK growth-supporting investments and support the UK Gilt market, while securing the retirement incomes of many more pension members.

She said: “We welcome the launch of the government’s review, marking the start of an important process, and look forward to playing our part.”

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