Rachel Reeves to unveil ‘large bang’ on British financial system with largest pension reform in a long time which may unlock as much as £80 billion value of funding

Rachel Reeves will today unveil a major pensions shake-up designed to unlock up to £80billion of investment in British infrastructure and business.

In her Mansion House speech, the Chancellor will confirm she is pressing ahead with plans to merge pension schemes to create ‘megafunds’ capable of investing in major infrastructure projects and emerging industries.

Ms Reeves will argue that the move could unlock a wave of private sector investment that will boost her anaemic growth forecasts and ultimately provide better returns for pensioners.

The Chancellor will use her speech in the City of London to try to set out a positive vision for growth, following last month’s high-tax Budget, which rattled some employers. 

She will say she has ‘never been more optimistic about our economic potential’.

In a thinly-veiled warning to Donald Trump, she will also make the case for free trade, arguing that protectionist tariffs of the sort planned by the president-elect would harm the global economy. 

Chancellor Rachel Reeves (pictured at Cambridge Biomedical Campus) will confirm she is pressing ahead with plans to merge pension schemes to create ‘megafunds’ capable of investing in major infrastructure projects and emerging industries

A Treasury source said Britain’s jumble of small local authority and defined benefit schemes was badly placed to provide the sort of large-scale investment needed to kickstart the British economy.

The source said evidence from countries like Canada and Australia suggests bigger schemes could deliver high returns by investing in projects such as road and rail rather than tying up cash in government bonds.

Treasury analysis to be published this week will show that big funds with assets of 25 to £50billion could provide far more productive investment in a wider range of assets.

Ms Reeves will say: ‘Now we’re going for growth. That starts with the biggest set of reforms to the pensions market in decades to unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off.’

The existing 86 local authority pension schemes, which control assets worth almost £500billion, will be required to consolidate assets into a ‘handful of megafunds’.

Ms Reeves will argue that the move could unlock a wave of private sector investment that will boost her anaemic growth forecasts and ultimately provide better returns for pensioners (file image) 

Ministers will also legislate to create a minimum size for private sector defined benefit schemes, forcing the merger of some, which between them manage almost £800billion.

The plans, which were originally discussed by the previous government, are now a key plank of Labour’s growth agenda, which took a knock last month when the Office for Budget Responsibility downgraded its growth forecasts for the later years of this decade.

Last night Zoe Alexander of the Pensions and Lifetime Savings Association, said: ‘Larger pension schemes can help achieve better outcomes for savers through economies of scale, stronger governance, negotiating power and additional resources.’

But the Local Government Pension Scheme Advisory Board has warned that forced merger was ‘highly unlikely to lead to better outcomes.’