Rachel Reeves’ pension megafund plans and what shake-up means for your money

Chancellor Rachel Reeves has said she is “going for growth” with a shake-up of the pensions market that will unlock tens of billions of pounds of investment in business and infrastructure. Labour Party Chancellor Ms Reeves has announced plans to merge local government retirement schemes into eight Canada-style “megafunds” in what the Treasury claims will be part of the biggest reform of the UK pension market in decades.

Ms plans to introduce a new pensions bill next year that will aim to pool assets from 86 separate local government pension schemes (LGPS) in England and Wales into eight “megafunds”, worth an average of £50bn each, by 2030.

Reeves is also planning to consolidate smaller defined contribution schemes across the country from private businesses into pools of £25bn to £50bn. The funds will take advantage of their size and use economies of scale, potentially helping to boost DC savers’ pension pots.

READ MORE Exact date UK hammered by -9C 'snow bomb' which will last 'five days'

The Government said analysis indicates that pension funds start to return greater productive investment levels once the size of assets they manage reaches between £25 to £50 billion. Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at consultants LCP (Lane Clark & Peacock), said: “It’s ultimately got to be about the members. Big isn’t always beautiful. There are some smaller pension schemes in Britain which are very good.

“They are heavily subsidised by employers, they offer very good pensions and it would be very unfortunate if something like that was destroyed by a crude size rule. It can’t be a crude cut-off point. It can’t be an assumption that big is always better.”

Sir Steve told the PA news agency there is a “whole raft of things that Britain needs more money invested in”. But he said that opportunities need to be “investable”, adding: “Some of this is about supply side and making sure there are schemes to invest in. There is a lot of work to be done in this space. There is a lot to be done on whether public money can be spent to leverage in private money.”

Sir Steve said the key benchmark needed to be: “Is this in the interests of the members?” Another potential risk could be that megafunds end up being “pretty much the same”, he said, adding: “When there are a lot to choose from, there’s quite a bit of competition.”