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Pension Fund Investment and the Economy

The new UK Government has given the reform of the UK pension system a high priority. The immediate focus is on pension fund investment to ensure fewer, bigger, better-run pension schemes. While occupational pensions are a reserved matter for Westminster, public service pension regulation is devolved to the Scottish Parliament. However, there are significant gaps in the UK proposals and little progress in Scotland. This paper examines these issues, focusing on how our pension system could deliver better outcomes for savers and the economy.

We examine where our pension funds are currently invested and the UK Government’s planned reforms. Investment in the UK has declined sharply in recent years, making the UK an international outlier. The UK also has a large number of small pension schemes. We agree that consolidation has significant benefits, including reducing costs and greater responsible investment opportunities. However, questions remain over the speed of change and if a more radical solution is required.

The devolved Scottish Local Government Pension Scheme is the largest pension scheme in Scotland, with assets of over £65 billion. We analyse where those assets are invested and the glacial pace of governance reform since the 2019 consultation. Scotland once led the way in local government pension fund investment. However, progress has been slow, and we are now trailing behind the actions taken in England and Wales.

Reid Foundation Director Dave Watson said:

“In this paper, we argue that while the UK reforms are moving in the right direction, there are significant gaps in the proposals, and the pace of change is slow. All pension funds need to do more for their members and the economy. In Scotland, much could be done under existing powers to cut costs and make our pension funds work better for pensioners and the Scottish economy.”