Fears over UK plan to create pension ‘megafunds’ to invest in infrastructure.
Chancellor Rachel Reeves is to lay out plans today to create pension “megafunds” in a drive to to increase infrastructure investment.
Reeves will tell the City tonight that she will introduce a new pensions bill next year, to pool assets from the 86 separate local government pension schemes (LGPS) into larger vehicles.
Those 86 defined-benefit schemes cover 6.5 million members and £360bn in assets. Putting them into larger pots would create a set-up similar to those in Australia and Canada, where single large pension funds managed by professional investors invest more in infrastructure
The chancellor will tell an audience of City leaders and chief executives at the Mansion House tonight that the plan could unlock £80bn of investment.
Reeves says:
Last month’s Budget fixed the foundations to restore economic stability and put our public services on a firmer footing. Now we’re going for growth.
That starts with the biggest set of reforms to the pensions market in decades to unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off.
But… there are concerns that the plan could put people’s retirement savings in danger.
Tom Selby, director of public policy at AJ Bell, fears that the interests of savers may be left behind as ambitious measures could put savers’ money at risk and undermine their retirement goals.
Selby says:
The government’s hope will be that by moving from having 86 local government schemes down to a single one, or a few, will benefit from economies of scale.
My overarching concern is that the needs of the saver, whose money is ultimately going to be risked, will be forgotten about. There’s a reason that an occupational scheme has a trustee to look after the interests of members. Part of that is investing their money to maximise returns and get the best retirement outcomes possible.
Selby adds:
Conflating a government goal of driving investment in the UK and people’s retirement outcomes brings a danger because the risks are all taken with members’ money. If it goes well, everyone can celebrate. But it’s clearly possible that it will go the other way, so there needs to be some caution in this push to use other people’s money to drive economic growth.
It needs to be made very clear to members what is happening with their money. One of the strengths of the system we have today is that investment decisions for members of defined contribution (DC) default funds and defined benefit (DB) schemes have independence baked in, usually via the appointment of trustees. Those trustees are required to make those decisions first-and-foremost with the aim of delivering the highest possible income in retirement for members.
Key events
IEA: Oil market to be in surplus in 2025
In other energy news, the International Energy Agency has predicted that the oil market will run a surplus next year.
In its latest monthly report, the IEA says that concerns over the health of the global economy have hit the oil price in recent weeks, with Chinese demand contracting for a sixth straight month in September
It predicts that the oil market will be “well-supplied” in 2025; the IEA estimates that oil consumption will rise by 990,000 barrels per day next year, while non-OPEC+ supply is expected to grow by 1.5 million barrels per day in 2025.
As a result, even if the Opec+ group continues to postpone its planned production increase, the IEA reckons supply will outpace demand.
It says:
Our current balances suggest that even if the OPEC+ cuts remain in place, global supply exceeds demand by more than 1 mb/d next year.
With supply risks omnipresent, a looser balance would provide some much-needed stability to a market upended by the Covid pandemic, Russia’s full-scale invasion of Ukraine and, most recently, heightened unrest in the Middle East.
UK and European gas prices at one-year high
UK and European gas prices have risen to their highest levels in a year.
The European gas benchmark has risen by 4.5% this morning to €45.65 per megawatt hour, the highest since November 2023.
The price of next-day gas in the UK is also trading at its highest since last November, up 4% to 115p per therm.
The increase comes as colder weather in Europe drive up demand for heating. Low wind speeds have also caused a “dunkelflaute” in the region, meaning less power could be generated by wind farms.
A drop in supplies from Russia is also a factor.
Bloomberg is reporting that Russia’s Arctic LNG 2 project has slashed output at its gas fields to nearly zero so far this month, due to western sanctions.
And….Germany has warned its state-operated gas import terminals to reject any Russian cargoes of liquefied natural gas, after it was notified of a planned shipment, the Financial Times reports this morning.
According to the FT, the German economy ministry has instructed Deutsche Energy Terminal “not to accept any deliveries of Russian LNG”.
A third possible factor is that Austrian oil and gas group OMV has been awarded €230m by the International Chamber of Commerce (ICC) over irregular German gas supplies from Russia’s Gazprom.
OMV plans to offset the claim against its bills to Gazprom Export to obtain its compensation, but there are concerns that Gazprom could potentially stop supplies to Austria in response.
Austrian energy minister Leonore Gewessler wrote in a post on X yesterday:
The current developments surrounding the OMV supply contract for Russian gas are to be taken seriously, but do not pose an immediate threat to our security of supply. We have always known that gas supplies from Russia are unsafe.
“We have been preparing for a possible supply disruption for a long time. In any case, our country’s gas supply is secure. Our gas storage facilities are full.”
Tracy Blackwell, chief executive of Pension Insurance Corporation, has backed Rachel Reeves’s pension reforms, as “a step in the right direction”.
Blackwell told BBC Radio 4’s Today programme that new pension “megafunds” will benefit the taxpayer.
“We think it’s a really important step in the right direction. It really mirrors what has already happened in the defined benefit private sector world.
“We can use our economies of scale and expertise to invest in complex projects in the UK.
“It doesn’t solve all the issues but it is very much a step in the right direction.”
Shares in Burberry have jumped 6% at the start of trading in London, as traders react to its turnaround plan.
Pub chain Young & Co has reported that last month’s budget will drive up its costs by £11m a year.
Simon Dodd, chief executive of Young’s, told shareholders that measures such as increasine employers’ national insurance contributions will be costly:
“The new Government’s budget will result in significant increased costs for our industry in the near term through rises in National Minimum Wage and Employer’s NI payments.
We expect the cost impact to be approximately £11 million on an annualised basis from next April. We will work to see how we can mitigate these headwinds without passing on all the cost to our loyal customers.
Burberry launches turnaround plan as sales fall
Luxury fashion group Burberry has announced a turnaround plan that aims to revitalise its sales and cut costs.
Burberry’s new CEO, Joshua Schulman, told the City this morning that his ‘Burberry Forward’ plan will “reignite brand desire”, improve performance and drive long-term value creation.
Schulman says he is aiming to attract a broad base of luxury customers, and criticises his predecessors for moving “too far from our core with disappointing results,” by trying to be modern rather than focusing on the firm’s traditional strengths.
Schulman explains:
We recognise there is much to be done in the short term, and we are acting with urgency. We are confident we can get back to generating £3 billion in annual revenue over time, while rebuilding margins and driving strong cash generation.
Burberry is also launching a cost savings programme to save £40m per year, and also suspending its dividend.
Burberry has also reported that revenues fell 22% year-on-year in the six months to the end of September, meaning it made a loss of. £53m, down from a profit of £223m the previous year.
Rachel Reeves has told the Financial Times that her plans will create eight pension “megafunds”.
She has told the Financial Times that these eight pools, worth an average £50bn by 2030, would end the role of local councils in administering the money and boost “fast-growing British businesses and infrastructure”.
Reeves told the FT:
“Everything will go through the pools rather than through local authorities.
This will deliver the megafunds that have eluded the UK for too long.”
Amanda Blanc DBE, chief executive officer at Aviva, reckon’s Reeves’s shake-up will benefit savers, saying:
“As the UK’s largest pension provider, we warmly welcome today’s announcement. These proposals will help get more savers into larger schemes that can offer better value and more opportunities for productive investment”.
Pension reforms will help lift UK from bottom of G7 investment league, says IPPR
The IPPR thinktank are hopeful that combining the UK’s 86 separate Local Government pension schemes into a single pot will help drive investment.
Dr George Dibb, associate director for economic policy at IPPR, says:
“With the lowest levels of investment in the G7—and among the lowest in the developed world—the UK has languished at the bottom of the league for 24 of the past 30 years. These pension fund reforms should help to end that.
“Consolidating pension pots into ‘megafunds’ will unlock substantial capital for UK investment, enabling more high-impact, high-return ventures. Paired with a comprehensive industrial strategy and the highest levels of public investment since the 1970s, these reforms will help shift the UK economy toward sustained investment and growth.”
Former Bank of England economist Neil Record is concerned that Rachel Reeves’s plan to create pension megafunds could leave taxpayers were “on the hook if investments went wrong”, the Daily Telegraph reports.
Record says:
This is not the case in the private pension market, where the number and size of failed pension funds now in the Pension Protection Fund illustrates how hard it is to get investments sufficiently right to pay the pensions promised.
Fears over UK plan to create pension ‘megafunds’ to invest in infrastructure.
Chancellor Rachel Reeves is to lay out plans today to create pension “megafunds” in a drive to to increase infrastructure investment.
Reeves will tell the City tonight that she will introduce a new pensions bill next year, to pool assets from the 86 separate local government pension schemes (LGPS) into larger vehicles.
Those 86 defined-benefit schemes cover 6.5 million members and £360bn in assets. Putting them into larger pots would create a set-up similar to those in Australia and Canada, where single large pension funds managed by professional investors invest more in infrastructure
The chancellor will tell an audience of City leaders and chief executives at the Mansion House tonight that the plan could unlock £80bn of investment.
Reeves says:
Last month’s Budget fixed the foundations to restore economic stability and put our public services on a firmer footing. Now we’re going for growth.
That starts with the biggest set of reforms to the pensions market in decades to unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off.
But… there are concerns that the plan could put people’s retirement savings in danger.
Tom Selby, director of public policy at AJ Bell, fears that the interests of savers may be left behind as ambitious measures could put savers’ money at risk and undermine their retirement goals.
Selby says:
The government’s hope will be that by moving from having 86 local government schemes down to a single one, or a few, will benefit from economies of scale.
My overarching concern is that the needs of the saver, whose money is ultimately going to be risked, will be forgotten about. There’s a reason that an occupational scheme has a trustee to look after the interests of members. Part of that is investing their money to maximise returns and get the best retirement outcomes possible.
Selby adds:
Conflating a government goal of driving investment in the UK and people’s retirement outcomes brings a danger because the risks are all taken with members’ money. If it goes well, everyone can celebrate. But it’s clearly possible that it will go the other way, so there needs to be some caution in this push to use other people’s money to drive economic growth.
It needs to be made very clear to members what is happening with their money. One of the strengths of the system we have today is that investment decisions for members of defined contribution (DC) default funds and defined benefit (DB) schemes have independence baked in, usually via the appointment of trustees. Those trustees are required to make those decisions first-and-foremost with the aim of delivering the highest possible income in retirement for members.
Introduction: Renters are squeezed by lower supply and rising prices
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK tenants are facing a “chasm” when trying to find a property to rent, surveyors are warning today, as demand rises and the supply of rental properties falls.
The Royal Institution of Chartered Surveyors (RICS) has reported that renters are being squeezed by lower supply and rising prices in the lettings market. A net balance of +19% of surveyors polled reported that tenant demand in their area increased over the last three months.
At the same time, landlord instructions, which measures how many landlords are making their property available for rent, fell over the quarter.
RICS’s UK Residential Market Survey found that a net balance of +33% of respondents expects rental prices to be driven higher over the coming three months, due to this mismatch between supply and demand.
RICS says that “woes for renters persist” as rental properties continue to disappear from the market and demand remains resilient in most regions.
RICS president, Tina Paillet, said:
Our data continues to indicate that renters are feeling the pressure from a limited supply of rental properties and rising rents.
While the Autumn Budget announcement of immediate stamp duty increases for landlords acquiring rental properties may increase opportunities in supply for owner-occupiers, it will make it more challenging to address the critical shortage of rental homes.
RICS’s latest monthly survey also found that UK house prices continued to rise in October, although they did drop in Yorkshire and the Humber, and the South West of England.
More surveyors expect prices to rise over the next year than to fall.
RICS says:
Virtually all parts of the UK are expected to see a rise in house prices in the year to come, led by firm growth across Northern Ireland and Scotland.
The agenda
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9.30am GMT: UK mortgage and landlord possession statistics: July to September 2024
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10am GMT: IEA’s monthly oil market report
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10am GMT: Eurozone GDP for Q3 2024
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10am GMT: Eurozone employment report for Q3 2024
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1pm GMT: Bank of England policymaker Catherine Mann gives a speech on “Revitalising the global economy”
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1.30pm GMT: US PPI index of producer price inflation for October
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1.30pm GMT: US weekly jobless claims
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Tonight: Mansion House speeches from Rachel Reeves and BoE governor Andrew Bailey