Pension “megafunds” could unlock £80billion of investment, Rachel Reeves will insist in a keynote speech.
The Chancellor will use her first Mansion House address to spell out what she will claim is the biggest set of pension reforms in decades.
Under the plans, through a new Pension Schemes Bill next year, defined contribution (DC) schemes could be consolidated and assets from 86 local government pension scheme authorities pooled. The Local Government Pension Scheme in England and Wales will manage assets worth around £500 billion by 2030. These assets are currently split across 86 different administering authorities, with local government officials and councillors managing each fund.
Consolidating the assets into a handful of funds run by professional fund managers will allow them to invest more in assets such as infrastructure, supporting economic growth and local investment on behalf of the 6.7 million public servants, the Government said.
DC pension schemes are set to manage £800 billion-worth of assets by the end of the decade.
There are around 60 different multi-employer schemes, each investing savers’ money into one or more funds. The Government will consult on setting a minimum size requirement for these funds.
Megafunds will mirror schemes in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential, the Government said. It said the move could deliver around £80 billion of investment in new businesses and critical infrastructure.
Ms Reeves’s speech will take place amid criticism from the hospitality sector and warnings that changes to employers’ national insurance contributions could lead to job losses.
Ms Reeves said: “Last month’s Budget fixed the foundations to restore economic stability and put our public services on a firmer footing. 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.”
Deputy Prime Minister Angela Rayner said: “This is about harnessing the untapped potential of the pensions belonging to millions of people, and using it as a force for good in boosting our economy.”
Pensions minister Emma Reynolds said: “These reforms could unlock £80 billion of investment into exciting new businesses and critical infrastructure.”
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “Today’s reform proposals are a positive step towards ensuring our system delivers the best value for money for savers.”
Jon Greer, head of retirement policy at wealth manager Quilter, said: “If managed carefully, this consolidation could open new doors for UK pensions, enabling access to infrastructure and private equity investments with strong return potential. However, the success of this initiative will depend heavily on the availability of new infrastructure projects to invest in. Interestingly, while Canada has very large pension schemes, they too are looking for ways to increase domestic investment.”