The government has announced plans to reform the UK pensions industry by creating a £25 billion megafund minimum.
The plan, which is set out in the government’s final report from the Pensions Investment Review, is part of its roadmap to making pension schemes and funds ‘Big, Bold and British’. The report is the conclusion of the Pensions Investment Review, which launched in July 2024.
It details that workplace pension providers of multi-employer schemes and master trusts will be required to have at least one main default arrangement with £25 billion to £50 billion in assets under management by 2030 to drive scale. Single employer trusts will not be subject to this requirement.
The reforms will also deliver consolidation in the defined contribution (DC) workplace pensions market, in order to enable more investment in productive assets and greater potential returns for workplace DC scheme members. A reserve power will also be taken to ensure the step-change in productive investment in the DC workplace pensions market.
Legislation to implement the reforms will be included in the Pension Schemes Bill.
A government spokesperson said: “The reforms will also deliver consolidation in the Local Government Pension Scheme in England and Wales. These will overhaul the way it invests to deliver large pools of professionally managed capital in line with international best practice, while embedding investment in local communities as a priority, placing the scheme on a stronger, more sustainable footing in the interest of members, employers and local taxpayers.”
Steven Cameron, pensions director at Aegon, added: “Providers of multi-employer schemes will be required to have at least one default arrangement operating at megafund level. The £25 billion minimum by 2030 is at the lower end of the range previously consulted on. We welcome the pragmatic transitional provisions which will allow providers with a default arrangement above £10 billion in 2030 to continue with this, provided they have a credible plan to achieve the £25 billion mark by 2035. We welcome the government confirming future regulations to allow contract-based schemes to transfer members without individual member consent. It’s important these regulations include appropriate member protections, with an independent best interests test.”
Tim Box, chair of PMI Policy and Public Affairs Working Group, said: “Whether greater scale means that investments would actually be directed into the UK remains to be seen. For those running UK pension schemes the ultimate responsibility is to act in the best interests of members. Pension funds will invest where opportunities align with long-term value and security. We look forward to seeing details of how the reserve power to set binding asset targets will work and the impact this will have on decision making.”
Sophia Singleton, president of The Society of Pension Professionals, added: “We very much support the government’s desire for British institutions to back British businesses, wherever it is in the interests of savers to do so and without underestimating the practical challenges, and we very much look forward to continuing our engagement with policymakers to make these proposals a success.”
