Labour has announced that it would undertake an in-government pensions and retirement savings review if the party is elected at the next general election.

In its Plan for Financial Services paper, published today (31 January), Labour stated that it would review the current state of the pensions and retirement savings landscape to assess whether the current framework would deliver sustainable retirement incomes.

This would involve working with the industry to ensure that pension savers are getting the best possible returns, and to identify and address the barriers to schemes investing more into UK productive assets, including “cultural and regulation-induced risk aversion".

According to the paper, the review would look at all types of pensions and retirement savings plans, corporate sponsors, asset managers, and venture capital and private equity, and outline proposals that would aim to bring about an approach that would benefit both UK plc and retirees.

Labour would also seek to enable greater consolidation across all pension schemes, which it said would enable schemes to have the access, expertise, and risk profile to increase investment in long-term illiquid assets.

For defined contribution (DC) pensions, Labour said it would give The Pensions Regulator (TPR) new powers to bring about consolidation where schemes fail to offer sufficient value to members, and ask TPR to provide guidance around fund and strategy suitability, and its expectation of a default cohort investment approach.

Minimum thresholds for scheme performance would be kept under review, with the aim of ensuring continued improvement in returns where possible.

Meanwhile, for the Local Government Pension Scheme, a Labour government would evaluate different models for pooling, including increasing in-house fund management capacity at the pool level, seeking to deliver better returns for members and increase investment in productive assets.

“The de-equitisation of the UK capital markets has been partly driven by a decline in institutional investment in UK equities over the last two decades,” the paper noted.

“In 2000, UK pension funds and insurers held 39 per cent of shares listed on the London Stock Exchange; in 2020 they held just 4 per cent.

“These changes have multiple causes, including accounting standards, regulation, tax treatment, and an emphasis on cost rather than value.

“The closure of defined benefit schemes to new members has shifted their risk profile to focus on guaranteed long-term cashflow rather than growth investments. But the result is that investment in UK companies has suffered, and UK pension savers are missing out on higher long-term returns from growth assets.

“Labour is undertaking further work to assess additional policy required to increase investment by institutional and individual investors in UK capital markets, and welcomes the opportunity to continue to engage with industry in shaping policy ideas.”

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