The UK government has unveiled plans to merge 86 local authority pension funds in England and Wales into "megafunds," a move aimed at unlocking £80 billion ($100 billion) for investment. Treasury Chief Rachel Reeves announced the reform during her first Mansion House speech, highlighting its potential to address the UK’s sluggish economic growth and provide better outcomes for pension savers.
The proposed changes, described as the "biggest pension reform in decades," would consolidate local pension funds under the Local Government Pension Scheme, enabling more efficient management and greater investment opportunities. By 2030, the scheme is projected to oversee assets worth around £500 billion, Reeves said.
Inspired by the success of large-scale pension funds in countries like Australia and Canada, where pooled resources have facilitated more substantial investments and economic growth, the UK’s plan seeks to replicate this model. Larger funds are expected to benefit from economies of scale, stronger governance, and increased negotiating power.
“Larger pension schemes can help achieve better outcomes for savers through economies of scale, stronger governance, negotiating power, and additional resources,” said Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association.
The Labour government intends to introduce the reforms through legislation next year. Early indications suggest bipartisan support, as the previous Conservative government had also considered similar measures. The initiative has been cautiously welcomed by business leaders, though some expressed concerns over the broader economic environment following recent tax increases.
The reform comes as the UK grapples with persistent economic challenges. Since the global financial crisis of 2008-9, the country's economy has underperformed compared to previous years, and recent data suggest only marginal growth in the second quarter of 2024.
The government hopes the creation of pension megafunds will not only enhance retirement savings for millions but also provide a significant boost to infrastructure, real estate, and other key investments, laying the groundwork for stronger economic performance in the years ahead.
