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| 1 minute read

Good News for UK Startups and Savers

There has been plenty of criticism in response to Jeremy Hunt’s recent pension reforms. The Institute of Fiscal Studies is concerned that Hunt’s move to abolish the pensions lifetime allowance will allow high income earners to pass their pension pots on to loved ones tax free. Pension funds are concerned that his Mansion House Compact, which commits many of the largest defined contribution (DC) schemes in the UK to invest at least 5% of their funds into private assets, may result in the creation of asset bubbles that could lead to losses for pensioners. 

However, a recent article in the Economist sees the push for pension funds to invest more in early-stage, high-growth firms as an undeniably positive one, with the capacity to unlock £50 billion of investment into UK industry. Britons’ pensions savings, the Economist suggests under the headline of “Cracking the nest-egg”, are invested in the wrong things. 

Referring to an analysis conducted by Oliver Wyman and the British Business Bank in 2019, it is suggested that a 22 year old allocating 5% of their DC fund to venture capital could increase their final retirement pot by 7-12%. The Mansion House Compact reforms make this scenario a real possibility. In his speech, Mr Hunt highlighted the success already realised by various other pension funds around the world. In particular, 6% of Australian DC funds are already invested in unlisted shares and, testament to value to be reaped from the changes, the hugely influential Canadian pension funds already have more exposure to high-growth businesses in the UK than the nation’s own pensioners. 

It is also not out of the question that the London Stock Exchange could, eventually, get a boost. Dr Mahony describes a recent gathering of City grandees, to discuss how to rejuvenate Britain’s capital markets. “It was the first time I’d been in a room full of people not just whingeing about the problem in a British way, but actually putting solutions on the table,” he says.


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