The government is to create pension megafunds as part of pension reforms aimed at unlocking an £80 billion investment in new businesses, infrastructure and local projects.
The reforms will be introduced through a Pension Schemes Bill next year.
The megafunds will be created by consolidating defined contribution (DC) schemes below a certain size and pooling assets from the 86 separate local government pension scheme authorities. This will mirror current set-ups in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential.
This is intended to free up money for local public services in the long-term and secure more than £20 billion for investment in local communities.
Chancellor of the Exchequer Rachel Reeves will use her first Mansion House speech, due to take place today (14 November), to announce action to tackle what she has called “the fragmented pensions landscape”, and to deliver investment and drive economic growth.
Reeves said: “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.”
Pensions minister Emma Reynolds added: “Harnessing the power of this multi-billion-pound industry is a win-win, benefiting future pensioners, and our wider economy..”
Alison Leslie, head of DC investment at Hymans Robertson, said: “Scale helps provide the ability to access a wider range of asset classes to generate higher returns for members. Scale should improve value for members across all services including investment. There must be a clear governance process to ensure decisions are made for member benefit. There is also the risk of stifling innovation if the scale of the mega fund is too high and smaller providers, which are currently innovating, are crowded out.”
Lisa Picardo, chief business officer UK at PensionBee, added: “We see local government pension scheme pooling as a substantial opportunity to lead the way in investing in UK-based assets, such as listed equities and unlisted infrastructure and other asset classes. Given the added protections offered by the structure, these funds are uniquely positioned to act as forerunners in establishing a robust market, paving the way for DC schemes to follow if justified by the success demonstrated and calibrated by healthy returns for savers.”
