Rachel Reeves is expected to double down on efforts to channel more of the country’s £2.5trn in retirement savings into UK businesses and infrastructure.
But while Labour argues that reform is essential to modernise the system, experts are warning that the plans could pile pressure on employers and increase risk for savers.
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Under the agreement, these providers have pledged to allocate at least 10 per cent of their default defined contribution (DC) funds into so-called “private markets”, which would mean investing in things like unlisted firms and green infrastructure. At least half of that investment will go into UK assets.
While Labour says investing in private markets could boost long-term returns, others say private assets can be harder to value, costlier to manage, and less liquid than shares on the stock market.
Crucially, the changes currently only apply to default workplace pension funds, which are the ones employees are automatically enrolled into if they don’t actively choose another option.
What could be announced?
Reeves is expected to go further in her speech, building on the Accord to deliver further reform through the upcoming Pensions Schemes Bill.
The push for scale is not without risk, though. Rachel Vahey, head of public policy at AJ Bell, warned that savers could get lost in the rush to create investment giants.
Many in the industry believe the current 8 per cent minimum auto-enrolment contribution is too low, especially with life expectancy rising and reliance on the state pension increasing.
Jon Greer, head of retirement policy at Quilter, said: “If the outcome is a push for higher contributions, it will have financial implications.”
There’s also speculation that Reeves could open the door to accessing defined benefit (DB) pension surpluses, which are pots of money that exceed what’s needed to meet guaranteed pension promises.
What it all means for your pension
If you’re in a default workplace pension scheme, which millions are, your money may increasingly be directed into private UK investments in the coming years.
Importantly, savers still have a choice. As Mr Hollands noted, many schemes allow members to switch out of the default fund if they prefer more conventional or lower-risk investments.
For the self-employed, gig economy workers, and low earners, the system remains patchy.
“Millions of people earning below the threshold, working multiple jobs, or operating as self-employed are not saving enough or at all for their future, not because they do not want to, but because the system is not designed for them.”
Catherine Foot, director at the Standard Life Centre for the Future of Retirement, warned that without immediate change, the UK faces a serious savings shortfall.
The Government has been contacted for comment.
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