UK finance leaders are advocating for a significant change to stimulate economic expansion.

• U.K. finance leaders are advocating for pension changes to stimulate weak investment and economic expansion.
• The Labour conference, marking the centre-left party's return to power after 15 years, was filled with City of London delegates pushing for the government to take swift action on making retirement schemes more competitive.
• In July, U.K. Finance Minister Rachel Reeves announced a comprehensive review of pensions as part of a package of significant reforms aimed at stimulating economic growth.

U.K. finance chiefs are advocating for pension reforms to stimulate sluggish investment and economic expansion in the country.

The Labour conference, marking the centre-left party's return to power after 15 years, was filled with City of London delegates pushing for the government to take swift action on making retirement schemes more competitive.

Santander U.K.'s chairman, William Vereker, identified pension reform as one of the three key drivers of economic growth, alongside skills and education, and regulation.

On Monday, Vereker stated to a gathering of industry leaders that our country is heavily dependent on the generosity of strangers for investment at the moment. We rely on external companies, investors, and so on to invest in our stock markets and businesses, which is not sustainable in the long run.

"The growth this government is focused on will not occur if domestic capital is not invested in domestic businesses," he stated.

Muirinn O'Neill, BlackRock's vice president of government affairs and public policy, stated that the new government has a "once-in-a-generation" opportunity to reform the pension system.

She stated on Tuesday that as long-term advocates for increasing defined contributions (DC) investment in private markets, we have been champions of the growth agenda.

According to Citi U.K. CEO Tiina Lee, domestic funds have been focusing on low-risk and low-fee investments, resulting in sub-optimal returns.

""Squawk Box Europe" reported that, according to Lee, pension reform is the key to promoting growth in the U.K."

The UK has nearly £5 trillion in long-term capital held in pension funds and insurance companies. To unlock even a fraction of that and invest in long-term infrastructure projects that drive growth is the right approach, she said.

UK pensions review

In July, U.K. Finance Minister Rachel Reeves unveiled a comprehensive review of pensions as part of a broader package of reforms aimed at spurring economic growth. Among the measures proposed are plans to merge local government pension funds into a single, larger fund, and to boost investment in U.K. high-growth businesses.

The government believes that such investments can help advance the U.K.'s strategic goals, including regional development, critical infrastructure, medical advancements, and decarbonization.

Tulip Siddiq, the economic secretary to the Treasury, stated on Monday that increasing the risk appetite of pension funds to invest more in equities is crucial for Labour's national renewal plans.

Unlocking capital in pension funds is crucial for investment in our country, as stated by her.

According to New Financial, U.K. pension schemes have a lower percentage of funds invested in domestic stocks and private assets compared to other major global pension markets. Specifically, only 4.4% of U.K. pension assets are currently invested in domestic stocks, which is lower than the global average of 10.1%.

Reeves has suggested that the U.K. could follow Canada's example of investing in both stocks and infrastructure through megafunds. According to the New Financial, the Maple 8 group of retirement funds have approximately 3% of their assets in domestic listed stocks, 22% in private equity, and 12% in infrastructure.

Last month, Reeves stated that Canadian pension schemes' substantial size allows them to invest more in productive assets such as critical infrastructure compared to ours.

The U.K.'s local government pension scheme, worth £360 billion and serving 6.6 million public sector workers, is currently divided into 86 individual funds in England and Wales. If consolidated into one fund, it would rank seventh globally.

The International Investment Summit in a month will be a crucial assessment of the government's aspirations to stimulate more investment, with approximately 300 business leaders attending.

Balancing the increase of domestic investment with the enhancement of returns will be a challenging task. Nathan Long, senior policy analyst at financial services firm Hargreaves Lansdown, emphasized the need for policymakers to have a clear understanding of the reforms' objectives and the time required to achieve them.

"If the returns on your investments don't come through for five to ten years due to the type of asset class you hold, your investment scheme may appear to be underperforming, even though it may not be."

O'Neill of BlackRock urged the government to adopt "joined up thinking" to address both the country's chronic lack of savings and the need for pensions reform simultaneously.