Chancellor Jeremy Hunt promised that average earners would be £1,000 a year better off in retirement under plans to reform the pensions industry.

Delivering his first Mansion House speech, he set out a series of measures aimed at directing up to £75 billion from UK pension plans into high-growth companies.

Mr Hunt wants the pensions industry to help finance vital infrastructure and companies in industries that will form the backbone of the new economy.

Amid concerns across the £2.5 trillion savings industry that retirees should not suffer from the redirection of funds, Mr Hunt said his “Mansion House Reforms” should also improve the returns enjoyed by members of retirement plans.

“British pensioners should benefit from British business success,” he said. “By unlocking investment, we will boost retirement income by over £1,000 a year for a typical earner over the course of their career. This also means more investment in our most promising companies, driving growth in the UK.”

He said that his shake-up was “guided by three golden rules”. These are ensuring “the best possible outcomes for pension savers” and safeguarding the stability of the gilt market, in which retirement funds are big investors. His final rule stipulates that any changes must bolster Britain’s position as a global financial hub.

At the heart of the Chancellor’s overhaul is a voluntary pledge by nine of Britain’s biggest defined contribution (or money purchase) pension providers, including Aegon, Aviva, Legal & General, M&G and Phoenix, to invest at least 5% of the assets in their defined contribution default funds in unlisted equities by 2030. Other proposals to shake up the DC market include plans to encourage smaller schemes to consolidate.

As part of the package the Chancellor also unveiled a revamp of defined benefit (final salary) retirement plans. He said the government would consult on a proposal to set local government schemes an “ambition” of doubling their existing investments in private equity to 10%.

Nigel Peaple, of the Pensions and Lifetime Savings Association, said: “This is a complex area and it is easy to get the wrong outcomes so the government is right to propose undertaking a public consultation on all the key issues.”

Stephen Bird, chief executive of Abrdn, said: “We all need to spend more time focusing on how we drive growth into the economy. If we get that right, many of the other problems the country faces start to become more manageable.

“Giving the City of London the right tools to drive growth can make a meaningful difference, and that’s clearly the Chancellor’s objective with these reforms. As a firm with a long track record of backing young companies and helping them join the market, we know the importance of a thriving stock exchange.”

On pension reform, he said: “As it stands, we’re facing a future where millions of people risk missing out on the retirement they deserve.

“With more people having to take responsibility for managing their own financial futures, we need to find ways to help pension savers access markets which can deliver better returns in the long run, without of course losing sight of cost and risk.

“It is a positive to see stakeholders on all sides facing up the issue and we, along with other firms across the industry, are ready to play our part in delivering reform.”

Aegon UK, a founding signatory of the Mansion House Compact agreement, is committing to increasing the proportion of the pension assets it manages for clients which are invested in unlisted equities.

Tim Orton, chief investment officer, said: “Aegon UK is proud to be a founder signatory of the Mansion House Compact which will help deliver better long-term outcomes for our pension scheme customers. 

“Trustees and managers of DC schemes are under a duty to act in the best interests of their scheme members. As part of this, they should consider a wide range of investments, including private equity, for the benefit of the members. This is particularly true of scheme default funds where most members remain invested, leaving investment decisions to the trustees or manager.   

“We are committed to ensuring our customers can access and share in the growth and success of innovative companies we invest in as part of diversified portfolios. We will use our scale and expertise to develop investment solutions seeking to improve the retirement outcomes of the millions of members of the defined contribution pension schemes we support.  

“The Compact will also create opportunities that help deliver £500 million assets under management target set for investments in climate solutions within its default funds by 2026 and as we progress towards net zero.” 

Bank of England governor Andrew Bailey, who also addressed the dinner, insisted that inflation “is set to fall markedly over the remainder of the year”.

He said that some of the monetary tightening implemented by the Bank “is still to come through the policy pipeline”, suggesting that the full force of higher borrowing costs is yet to feed through into the economy.

Mr Hunt added that tackling prices “means taking responsible decisions on public finances, including public sector pay, because more borrowing is itself inflationary”.