The government is planning on reforming pensions so that defined contribution (DC) schemes can invest more in equity.
Speaking at Mansion House, Jeremy Hunt announced the ‘Mansion House Compact’, a deal signed with leading pension providers such as Aviva PLC (LSE:AV.), Scottish Widows and Legal & General Group PLC (LSE:LGEN).
These providers manage around £400bln or around two-thirds of assets in the DC market.
The deal aims to allocate at least 5% of default funds for investing in unlisted equity by 2030.
“If the rest of the UK’s DC market follows suit, this could unlock up to £50 billion of investment into high-growth companies,” Hunt said in his speech on Monday.
Plans are also in place to help with “DC consolidation” by allowing funds to invest in a wider range of channels such as bonds, equity, and unlisted assets.
The Chancellor said final decisions about the reforms will be made at the Autumn Statement, but in the build-up, he would be directed by three “golden rules”.
Hunt said: “Firstly everything we do we will seek to secure the best possible outcomes for pension savers.”
“Secondly, we will always prioritise a strong and diversified gilt market.”
He concluded the final golden rule is to make sure the UK is always trying to strengthen its position as a leading financial centre by being able to fund the “precious” public sector.