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What are the Mansion House pension reforms and will they affect your wealth?

22nd August 2023

Chancellor Jeremy Hunt announced pension reforms – dubbed the “Mansion House Reforms” – in early July.

According to the Treasury, the reforms are set to unlock an additional £75 billion in investment for high-growth British businesses by utilising the cash in the nation’s pension pots.

 How will this affect your pension on an individual level? This depends on how proactive you are with the management of your savings pots.

Mansion House Reforms in practice

The reforms announced by Hunt are looking to redirect money in UK pensions towards investments that might help to boost the economy.

The UK has the largest pension market in Europe with around £2.5 trillion in assets.

Through the reforms, the nine largest pension providers in the UK have agreed to increase investment in unlisted equities – i.e., companies not represented in the stock market – from around 1% of assets to 5%.

The Government says this could potentially unlock around £50 billion in extra investment cash for fast-growing firms in the UK as a result.

Chancellor Hunt commented in the announcement: “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career.

“This also means more investment in our most promising companies, driving growth in the UK.”

The reforms are backed by a wide range of businesses from JPMorgan to Octopus and the ScaleUp Institute.

How will my pension be affected?

The reforms are a potentially large shift in how investment capital in the UK, through pensions, is used.

Major pension providers will look to tweak the allocations of their default investment funds to match the 5% unlisted equity threshold.

However, it isn’t compulsory to have your pension pot invested in this way. The tricky thing here is your workplace pension might be one of the signatories to the scheme, and the choices beyond default fund might be limited.

Members of the compact include: Aegon, Aviva, L&G, Mercer, M&G, Nest, Phoenix,

Scottish Widows and Smart Pension.

These default funds might not be the best place for your portfolio depending on your circumstances. It is really important to speak to an adviser to decide on the best course of action for any pension pot as this shift in investment and risk outlook can have significant implications.

Unlisted equities tend to be riskier than listed companies, which tend only to be on the stock market thanks to a proven track record. They are also less liquid which makes it harder for investment funds to sell assets if they require cash.

If you are closer to retirement these kinds of investments might not be the right choice for you, especially if you are looking to protect your capital rather than going for growth.

Either way, get in touch to discuss your options.

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