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The UK pensions minister has said boosting the amount of retirement savings invested domestically and improving returns for retirees must come before any increase in the proportion of wages automatically put into pensions.
Emma Reynolds on Friday said her first objective was to “increase pension investment in UK productive assets”, with the aim of supporting the country’s capital markets and helping to kick-start economic growth.
Her second objective was to improve the income of future retirees by improving returns they get from their pension pots, Reynolds said in her debut ministerial speech.
Reynolds said increasing the proportion of worker wages automatically contributed to pensions under the UK’s “auto-enrolment” system could help people save for retirement but would not be considered until later.
“I’m very clear that to have the discussion about contribution levels and security in retirement, we need to have confidence that our pension system is delivering a fair outcome for savers, as well as employers and taxpayers,” she said.
The Labour government, which took office in July, has largely continued a pensions reform agenda in the UK that gathered pace under the previous Conservative administration.
Both parties support increasing pension investment in domestic companies and in private assets, which can deliver higher returns but are more costly to invest in, as a way of driving UK economic growth.
The idea is popular with executives but has triggered concerns about potential risks for savers, particularly as UK-listed stocks have underperformed US equities in recent years and because private assets are sometimes seen as riskier or more expensive investments.
Since July, the UK government has announced proposals to help savers consolidate separate pension pots from different employers and is consulting on pooling assets from local government pension schemes.
Industry executives have also pushed for an increase in the default rate of pension saving for employees under the country’s auto-enrolment system to ensure adequate provision for their retirement.
Under the system, eligible employees and their employers must make a combined contribution of 8 per cent of salary unless the worker opts out.
The system has been credited with increasing savings levels but some experts argue that this rate is too low and that the UK should follow countries such as Australia by increasing to 12 per cent or more.
Reynolds, who worked at financial services lobby group TheCityUK before her return to parliament as a MP in July and swift appointment as a minister, was speaking to executives at the London Stock Exchange’s headquarters.
The event focused on efforts to overhaul the UK’s investment and corporate governance landscape to revive the City of London.
A new forum for company chairs and fund managers was unveiled at the event, confirming a Financial Times report in January.
The group, called the Investor & Issuer Forum, is intended to create a constructive dialogue between listed companies and investors after years of fractious relations over issues such as executive pay and environmental, social and governance metrics.