The U.K. government is introducing legislation that aims to increase defined contribution pension plan savings by more than £1,000 a year in retirement for the average plan member.
The legislation will commit nine of the U.K.’s largest DC plan providers to an objective of allocating five per cent of assets in their default funds to unlisted equities by 2030. The providers, which represent more than £400 billion in assets and the majority of the U.K.’s workplace DC plan market, include Aegon, Aviva, Legal and General Group, M&G, Mercer, Nest, Phoenix Group, Scottish Widows and the Smart Pension Master Trust.
According to a press release, if all U.K. DC plans followed suit, it could unlock up to £50 billion of investment in high-growth companies by 2030.
The legislation includes a DC pension investment framework clarifying that investment decisions should be based on overall long-term returns and not costs. It also establishes a new collective DC fund that can invest more effectively by pooling assets.
In addition, DC plans that aren’t achieving the best possible outcome for their members will be wound up into better-performing plans, said the release, noting a government analysis found that, over a five-year period, there was as much as a 46 per cent difference between the best and worst performing plans.
“British workers should have the confidence that their pension savings are working as hard as they are,” said Secretary of State for Work and Pensions Mel Stride, in the release. “Our reforms will benefit savers and society, unlocking investment into pioneering U.K. businesses, growing the economy and helping the record number of people in this country saving into a pension to achieve the retirement they want.”