Raise pension contributions to combat UK capital market slump, say experts

LONDON (Reuters) – Raising minimum contributions to pension plans and tightening regulations would help plug shortfalls in retirement income and reverse Britain’s capital market contraction, think tank New Financial said in a report on Tuesday. .

a confusion of regulatory reforms Bolstering London’s capital market and boosting the flow of pension money into investment is a good start, but more is needed to prevent pensioners from having too little to live on, New Financial CEO William Wright said.

“This is not something that we can continue to release in the future,” Wright told reporters.

The report, written in collaboration with Citi bank and abrdn asset management, says there is a “parallel crisis” in Britain’s pension and capital markets as very little investment flows into UK-based companies. Kingdom and asset managers play it safe with government bonds.

“I wonder if there’s anything in Consumer Duty that says there’s something about having too much money in a bank account when you don’t need it, you should invest money in something that’s better than that,” abrdn president Douglas Flint said. saying.

The Financial Conduct Authority’s consumer duty, introduced in July, requires financial firms to ensure customers get fair value for their investments and flag better deals when available.

The report says that currently an employee has to contribute a minimum of 8% of their earnings to a defined contribution (DC) pension plan, a level “lamentably inadequate”.

This fails to create a large enough pool of money to allow further investment in riskier assets, such as start-ups and infrastructure, and reverse a contraction in prices.

The average DC pension fund for people aged 55-65 is just £35,000 ($44,177), giving an annual pension of £1,750, meaning a social safety net is often needed.

“You have to have a planning path to get to 15% or 16%. The big problem is the contribution rate,” Flint said.

The report rejects forcing pension funds to invest in certain assets, but notes that £48bn of net tax relief on pension contributions in 2021 alone means there should be a “social contract” to create some kind of ” quid pro quo” by the sector. .

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