\n\t\t\t\t\tNew reforms could mean pensions may grow by smaller amounts if a certain portion of investment in UK companies was mandated by the Government\t\t\t\t\t <\/p>\n
Government plans to reform the pensions industry <\/a>and allocate people\u2019s retirement savings towards private investment could end up leaving them tens of thousands of pounds worse off in their later years, according to analysis.<\/p>\n Labour <\/a>is looking to introduce new laws that will allow it to set legally binding targets for how much pension funds<\/a> must invest in assets not traded on public stock exchanges.<\/p>\n This means some of savers\u2019 money<\/a> being directed towards things like infrastructure and property.<\/p>\n But while the Government itself has said this could boost people\u2019s retirements, some pension experts are sceptical, and say its possible that the plans could lead to people\u2019s investments <\/a>growing at smaller rate.<\/p>\n Projections put together for The i Paper by wealth management firm Quilter show that under the plans, someone earning \u00a340,000 \u2013 slightly above the UK average wage \u2013 could end up with a pension pot worth \u00a318,000 less than they would do currently.<\/p>\n It also suggested that someone earning \u00a330,000 a year and contributing the standard 8 per cent to their pension \u2013 currently the minimum under automatic enrolment \u2013 could see their retirement <\/a>pot end up \u00a313,787 smaller if invested in private markets, than it would if they invested heavily in overseas stocks <\/a>instead.<\/p>\n This is based on assumptions of 2 per cent inflation <\/a>and 8 per cent annual growth on pension savings.<\/p>\n Quilter compared a pension with some investments in private equity \u2013 as would be the case under Government plans \u2013 to a pension with larger investments in stocks in overseas firms. <\/p>\n For someone earning \u00a350,000, the projected shortfall increases to \u00a322,979. And at a \u00a375,000 salary, this shortfall reaches \u00a334,468 \u2013 a substantial amount that could meaningfully affect someone\u2019s retirement lifestyle<\/a>.<\/p>\n The analysis shows that pensions may also end up growing by smaller amounts if a certain amount of investment in UK companies was mandated by the UK Government.<\/p>\n These projections are based on asset allocations used by the Government in its own modelling \u2013 however there are many variables with contributions the main source of outcome. <\/p>\n Jon Greer, head of retirement policy at Quilter, noted these are forecasts, not guarantees, and the actual effect on pensions remains highly uncertain.<\/p>\n He said: \u201cThe key question here is access \u2013 high-quality infrastructure projects are not a given, and ultimately, scheme operators and trustees need to be assured that increasing exposure to UK and private markets will materially enhance pension fund performance.\u201d<\/p>\n The Government reforms come as part of the proposed Pension Schemes Bill and \u2013 in essence \u2013 the shift would mean savers\u2019 pensions could be directed into long-term projects \u2013 like building new homes \u2013 rather than traditional listed stocks and bonds.<\/p>\n It is part of a broader Government strategy to stimulate private investment and drive economic growth in the UK but the proposal has sparked a wave of debate. <\/p>\n While some experts believe the strategy could help unlock more cash for pension holders, others remain sceptical about potential risks and returns. <\/strong><\/p>\n Even the Government\u2019s own analysis, conducted in November last year, points to only a modest uplift of around 2 per cent, which Greer describes as \u201chardly a game-changer for members\u201d.<\/p>\n