Reeves outlines plan for £25bn pension ‘megafunds’

The government has fleshed out its plans for reforming the UK pension industry, including the creation of £25bn “megafunds” which will be instructed to make a portion of their investments locally to help fuel economic growth.

The chancellor said the overhaul, designed to follow the example of Australia and Canada’s huge pension investment funds, would also boost people’s pension pots.

“These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses,” Rachel Reeves said.

Seventeen of the UK’s largest pension firms already approved the gist of these reforms in a voluntary agreement earlier this month.

However, the government is also including a legislative back-stop, which will allow it to push through the new rules, if insufficient progress is made by the end of the decade.

The government has indicated it does not expect to use the new powers.

Nevertheless, that element may draw criticism, with some in the industry opposed to any government mandate over how and where investments are made.

“The challenge for investment into the UK has been finding good investments to make – and policy that may improve that supply side [is] probably just as important,” Chris Rule, chief executive of the Local Pensions Partnership, told BBC Radio 4’s Today programme.

He added that most pension funds “invest in the UK and locally anyway”.

Zoe Alexander, a director at the Pensions and Lifetime Savings Association, said the changes would have “significant implications” for how pension schemes operated.

But she added: “Increased consolidation has the potential to improve retirement outcomes through improved governance, wider investment diversification and improved bargaining power.”

Miles Celic, chief executive of The City UK, representing the financial services industry, backed the chancellor’s assertion that the move could “help drive economic growth”.

A former Liberal Democrat pensions minister, Sir Steve Webb, who is now a partner at consultants LCP, described the news as “truly a red letter day for pension schemes, their members and the companies who stand behind them”.

“The government has clearly been bold in this area and this opens up the potential for this surplus money to be used more productively to benefit scheme members, firms and the wider economy,” he added.