UK Pension Reforms Add Mandates, Risks, and Tax Issues

The UK government is preparing major pension reforms, including granting itself reserve powers and setting binding asset allocation targets to mandate pension funds to invest in British assets and private markets. This follows the Mansion House Accord, a voluntary industry pledge to increase investments in UK infrastructure and start-ups, but the government now seeks to make such commitments compulsory. Additional measures will allow businesses to draw down surplus funds from defined benefit pension schemes, potentially raising up to £40 billion for the Treasury, though critics warn this could jeopardize final salary pensions for millions. Pension industry leaders argue that mandatory domestic investment may conflict with trustees' fiduciary duties and increase risks to pension security. Recent state pension increases may push some pensioners' annual incomes above the tax threshold, resulting in new tax liabilities, prompting calls for better government communication. The reforms aim to stimulate the UK economy but have raised concerns about pension fund safety and transparency for retirees.