Chancellor confirms 'Mansion House Compact' pension reforms

The chancellor is clearly desperate to boost long-term growth in the UK but has no appetite to do so through increased government borrowing. Given that context, it is understandable Jeremy Hunt has his eyes firmly set on directing a chunk of the UK’s £2.5 trillion pensions war chest into the UK economy.

As these proposals are developed, it is vital the interests of savers are paramount in the thinking of the Treasury, regulators and the wider financial services industry. Defined contribution (DC) and defined benefit (DB) pensions are very different beasts and need to be treated as such, so it is positive the government hasn’t gone down the road of forcing pension schemes to allocate their funds in a certain way. It is also sensible to keep these reforms away from the retail investment world, where illiquid investments are more likely to be problematic.

The ‘Mansion House Compact’ aim of getting at least 5% of workplace pension default funds invested in unlisted equities by 2030 might be seen as a potential boon for the UK economy, but any such investment needs to be done in the best interests of members. The Neil Woodford scandal exposed some of the challenges big investments in illiquid assets can have and investors will not thank the government if this policy hits the value of their retirements pots.

It is, of course, possible that an investment approach that embraces a bit more risk over the long-term will ultimately boost member returns – but there are absolutely no guarantees. As such, the chancellor’s claim that this new approach will boost the average pension pot by 12%, or £1,000 a year, when they reach retirement should be treated with a huge handful of salt.