Government Unveils £25bn Pension 'Megafunds' to Boost UK Growth
Rachel Reeves outlines major reform to consolidate pensions and channel investment into UK infrastructure and clean energy
£25bn Pension Megafunds to Drive Economic Growth
Chancellor Rachel Reeves has unveiled a bold plan to transform the UK pensions industry, introducing £25 billion “megafunds” aimed at stimulating economic growth and delivering better retirement outcomes.
The reforms, inspired by large-scale pension systems in Australia and Canada, will consolidate existing schemes and direct more investment into domestic infrastructure, clean energy, and high-growth businesses.
“These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses,” Reeves said.
Voluntary Industry Backing, with Legal Powers on Standby
Seventeen of the UK’s largest pension providers have already signed a voluntary Mansion House Accord, committing to invest:
- 10% of assets in unlisted and growth-focused investments
- 5% specifically into UK-based assets
However, if insufficient progress is made by the end of the decade, the government plans to introduce legislation via the Pension Schemes Bill to enforce the changes—though it currently does not expect to use those powers.
Local Authority and Private Pensions to Be Consolidated
The reforms target both public and private sector pensions:
- Local Authority Defined Benefit Schemes
- 86 schemes covering 6 million public sector workers (many low-paid women) will be merged into six asset pools by March 2026
- Local investment targets will be introduced for the first time
- The pool holds £392 billion in retirement assets
- Defined Contribution Schemes
- Covering millions more private and public sector workers, these schemes—currently worth £800 billion—will also be consolidated
- By 2030, the government expects to see 20+ pension funds worth over £25 billion each, up from 10 today
Defined benefit schemes guarantee a set pension based on salary and service, while defined contribution schemes depend on investment performance.
Expected Benefits for Pension Savers and the Economy
According to the Treasury, the reforms could generate over £50 billion in additional UK investment, targeting:
- Infrastructure
- New housing
- Fast-growing UK-based businesses
The government also estimates that workers on average earnings could see a £6,000 boost to their defined contribution pension pots through reduced waste, better governance, and economies of scale.
Industry and Expert Reactions
Support and Optimism
- Zoe Alexander, Pensions and Lifetime Savings Association:
“Consolidation can improve outcomes through better governance and investment strategies.”
- Miles Celic, The City UK:
“This move can help drive economic growth.”
- Sir Steve Webb, former pensions minister:
“A red letter day for pension schemes, their members and supporting firms.”
Concerns and Caution
- Chris Rule, Local Pensions Partnership:
Warned that the real challenge lies in finding high-quality UK investments.
“Most funds already invest locally—what’s needed is better policy to create investable opportunities.”
Final Report and Legislative Next Steps
The proposals are based on the findings of the Pensions Investment Review, with the final report published this week. The Pension Schemes Bill, which includes the proposed reforms, is set to go before Parliament shortly.
Summary
- £25bn “megafunds” to consolidate UK pensions
- Investment focus on infrastructure, housing, and clean energy
- Reforms could unlock £50bn+ for the UK economy
- Average earners could see £6,000 pension boost
- Voluntary industry deal in place, with legislation as backup
These reforms signal one of the most ambitious shake-ups of the UK pension system in decades, aimed at boosting saver returns and fuelling the nation’s economic revival.
Sources: (BBC.co.uk)
