Treasury Secretary Rachel Reeves‘ speech to investors in the Financial and Business District yesterday evening, Thursday, included her plans to merge pension funds for workers in the local administration of British districts into larger funds modeled on Canada’s sovereign wealth fund, in an attempt to convince the markets of her plan to encourage economic growth.
In an interview with the Financial Times newspaper before yesterday’s speech, Reeves said that “merging pension funds into larger funds could save up to 80 billion pounds ($101 billion) of investments,” but she ruled out forcing pension funds to invest. In infrastructure projects and other aspects of government investment spending.
The legislation that the government will present to Parliament next year, 2025, seeks to merge pension funds that manage assets ranging between 25 billion pounds ($31.6 billion) and 50 billion pounds ($63.2 billion) into eight major pension funds, in order to save costs and achieve returns. It is better to withdraw the management of these funds from local councils to be managed by investment managers, thus pumping more of their funds into government and private projects.
Canadian model
According to the proposed legislation, the process of merging assets will end by 2030, so that all pensions for government and public sector employees will become assets of eight major funds with an average of 50 billion pounds ($63 billion) per fund.
Analysts estimate that Britain’s local government pension funds have combined assets of up to 391 billion pounds ($495 billion), which is equivalent to more than Canada’s public sector pension funds as a whole, but those assets in Britain are divided by 86 percent. A pension fund for neighborhood councils, which pays pensions to about 6 million workers in local administrations in Britain.
Reeves says that the law proposed by the British government will not be limited to merging the pension funds of local administrations and district councils only, but will also affect all pension funds that are managed by public works and contribute to them alongside workers, in addition to pension funds known as “direct contracts” that The contract of the employees contributing to it is directly with the pension fund, and the number of these funds is 34, according to statistics from the consulting company “Go Pension”.
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If Parliament passes the law, the pool of assets of pension funds will become equivalent to what Canada or Australia has, which combines pension funds for government and public sector workers into something similar to “sovereign wealth funds,” but leaves those funds to choose the methods of investing assets for the benefit of shareholders who own pensions. Retirement without imposing government policy on its investment plans.
The Treasury Secretary and other officials point to the Canada Pension Pooled Fund model as a model to follow.
The Canadian Pension Plan manages assets worth 632 billion Canadian dollars (445 billion US dollars), and during the last decade it achieved a return to shareholders of 9.2 percent on average annually, while British pension funds affiliated with local councils achieved a seven percent average annual return in that period.
Investing for growth
It is noteworthy that the previous Conservative government also intended to restructure pension funds, as the Financial Times indicates that former Treasury Secretary Jeremy Hunt advised Reeves to adopt his previous project.
Even without forcing pension funds, which manage the assets of 26 million Britons in total and manage assets (of all funds for public sector and government workers or similar funds for private sector workers) amounting to hundreds of billions of pounds, to invest in infrastructure or public projects, it could Investing in British assets should stimulate economic activity.
In her interview with the newspaper, Reeves estimates that the reform process for pension funds could increase the percentage of their investment in infrastructure projects by about five percent.
Pension funds invest about a third of their assets in stocks and securities, but only seven percent of them are companies registered on the London Stock Exchange, and the rest are in major markets abroad, the most important of which is Wall Street.
In addition to presenting a plan to merge and consolidate pension funds with the aim of enhancing the investment of their assets in British projects to stimulate the economy and increase growth, Reeves’ letter to investors indicated that taxes would not increase after the announcement of her recent budget, in which taxes were raised by 40 billion pounds ($50.5 billion), but in In her interview with the newspaper, she refused to pledge not to increase taxes again, explaining that she might have to do so if “international circumstances change.”
