Raise pension contributions to combat UK capital market decline, says think-tank
Reuters
Published Sep 05, 2023 00:45
By Huw Jones
LONDON (Reuters) - Higher minimum contributions to pension schemes and turning the regulatory screw would help plug shortfalls in retirement income and reverse shrinkage in Britain's capital market, think-tank New Financial said in a report on Tuesday.
A welter of regulatory reforms to bolster London's capital market and boost the flow of money from pensions into investments is a good start, but more is needed to avoid pensioners having too little to live on, said New Financial CEO William Wright.
"This isn't something that we can keep kicking down the road," Wright told reporters.
The report, written in partnership with Citi bank and abrdn asset management, said there is a "parallel crisis" in Britain's pensions and capital market as too little investment flows into UK-based companies and asset managers play safe with government bonds.
"I would wonder if there's something in the Consumer Duty that says there's something about having too much money in a bank account when you don't need it, you should be putting money into something that is better than that," abrdn chair Douglas Flint said.
Regulator the Financial Conduct Authority's Consumer Duty introduced in July requires financial firms to ensure that customers are getting fair value on their investments, and to point out better deals where available.
The report said an employee currently has to contribute a minimum of 8% of earnings to a defined contribution (DC) pension scheme, a "woefully inadequate" level.
This fails to build a big enough pool of money that allows more investment in riskier assets like start-up companies and infrastructure, and reverse a shrinkage in listings.
The median DC pension pot for people aged 55 to 65 is just 35,000 pounds ($44,177), giving an annual pension of 1,750 pounds, meaning a social security safety net is often needed.
"You have to have a glidepath to getting to 15% to 16%. The big issue is the contribution rate," Flint said.
The report rejects mandating pension funds to invest in certain assets, but notes that 48 billion pounds in net tax relief on pension contribution in 2021 alone means there should be a "social contract" to create some form of "quid pro quo" from the sector.
Get The App
($1 = 0.7923 pounds)
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.