The government is exploring the possibility of creating ‘pension megafunds’ as part of the biggest set of pension reforms in decades.
It says the move will unlock billions of pounds the could be invested in new businesses and infrastructure projects.
Chancellor Rachel Reeves will use her first Mansion House speech in the role to announce bold action to tackle the fragmented pensions landscape, deliver investment and drive economic growth.
She intends to introduce the reforms through a new Pension Schemes Bill next year, will create the new funds by consolidating defined contribution schemes and pooling assets from the 86 separate Local Government Pension Scheme authorities.
These megafunds mirror set-ups in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential, offering to deliver up to £80 billion of investment for new businesses and critical infrastructure while boosting defined contribution savers’ pension pots.
She 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.
The UK pension system is one of the largest in the world – with the Local Government Pension Scheme and Defined Contribution market set to manage £1.3 trillion in assets by the end of the decade. However, the pension landscape is fragmented and lacks the size needed to invest in exciting new businesses or expensive projects like infrastructure.
The government’s analysis – published today in the interim report of the Pensions Investment Review at Mansion House – shows that pension funds begin to return much greater productive investment levels once the size of assets they manage reaches between £25-50 billion. At this point they are better placed to invest in a wider range of assets, such as exciting new businesses and expensive infrastructure projects. Even larger pensions funds of greater than £50 billion in assets can harness further benefits including the ability to invest directly in large scale projects such as infrastructure at lower cost.
