The UK government announced a deal between nine of Britain’s largest pension providers, to increase their investment in growth-oriented companies. It said that if other industry players follow suit, this could unlock £50billion ($64billion).
Jeremy Hunt, Chancellor of Exchequer, announced the agreement in his annual Mansion House speech on Monday night. Hunt stated that the pact, which was first reported last Monday, and other reforms will benefit pensioners to the tune more than £1,000 a year after they retire. “We will not only deliver more competitive financial services, but also a more innovative economic environment,” Hunt told 350 top City executives at the Square Mile’s most prestigious banquet. The agreement “will boost returns and improve outcomes to pension fund holders while increasing funding liquidity for fast-growing companies,” Hunt said at the Square Mile’s most prestigious dinner, in front of 350 top City executives.
Hunt also said that he would progress plans to rollback parts of European Union law which forced financial firms separate investment research costs from trading expenses. This was first reported.
Hunt is trying to boost UK economic growth through investment in innovative companies. The capital market reforms and the pensions agreement are two of his efforts. After a wave of criticism from businesses about a hostile environment for companies and policy inertia, the chancellor has been under pressure to demonstrate that Britain is open for trade.
There is also an electoral pressure: Britain’s ruling Conservative Party has been in a double-digit deficit polling against the opposition Labour Party since months. A general election is due to be held by January 2025. Hunt wants to fix the UK’s cost-of living crisis and anemic growth.
Hunt stated that “a strong economy requires a successful city.” “We can improve the functioning capital markets.”
Hunt’s pensions agreement is the latest of a series financial services reforms announced by him since he was appointed chancellor. He has been trying to find benefits for the City after Brexit. These plans included relaxing capital restrictions and consulting on EU regulations regarding short-selling.
The challenge is to counteract some of the negative impacts of Brexit. London’s financial sector has lost some jobs and assets, as well as other finance centers such New York.
Hunt stated that the pensions compact would increase returns for investors and the initial signatories represented a majority of defined-contribution market.
Nicholas Lyons said that the reforms marked a “historic turning point” and would achieve the twin goals of providing a better future for retirees while also bringing billions of dollars into the economy. Lyons was the Lord Mayor of London who organized the pact. He said it would “support companies to grow, remain and list in the UK”.
The agreement also includes Scottish Widows, Aegon N.V. and Phoenix Group Holdings plc.
In addition to the reforms announced in this statement, other initiatives aimed at the city include:
Consultation on increasing investments by local government pension fund in private equity to 10%. This could unlock £25 billion (£25 million) by 2030. Simplifying investor prospectuses, and creating an “intermittent trading platform” where private companies can gain access to public markets without having a full IPO.
Hunt’s main concern is high inflation, not low growth. BOE Governor Andrew Bailey also spoke at Mansion House and said that inflation will likely drop “markedly”. He added that the full effect of interest rate hikes has not yet hit the economy.
Hunt, for his part said that he would continue exercising restraint when it comes to pay awards in the public sector.
Hunt stated that “we will do whatever it takes for as long necessary to combat inflation persistence and get it back to 2%.” “There is no sustainable growth if inflation persists, which discourages investment and undermines consumer confidence.”