The government has announced the creation of pension megafunds that could unlock £80 billion of infrastructure investment.
Touted as the ‘biggest pension reform in decade’, Chancellor Rachel Reeves unveiled her plan to create megafunds through consolidating defined contribution schemes and merging Local Government Pension Scheme assets
The reforms will be introduced through a new Pension Schemes Bill next year.
The megafunds mirror schemes in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential.
The UK pension system is one of the largest in the world – with the Local Government Pension Scheme and Defined Contribution market set to manage £1.3 trillion in assets by the end of the decade.
But the government argues the pension landscape is fragmented and lacks the size needed to invest in expensive projects like infrastructure.
Local Government Pension Scheme
The Local Government Pension Scheme in England and Wales will manage assets worth around £500 billion by 2030.
These assets are currently split across 86 different administering authorities.
Consolidating the assets into a handful of megafunds run by professional fund managers will allow them to invest more in assets like infrastructure.
The treasury also said a new independent review process will be established to ensure each of the 86 authorities is fit for purpose.
Budget commitments
In her inaugural budget, Reeves committed an additional £500 million for local road maintenance in 2025-26 as well as confirming the extension of HS2 to London Euston, expected to cost around £1 billion.
Chancellor of the Exchequer, Rachel Reeves, said: “Last month’s Budget fixed the foundations to restore economic stability and put our public services on a firmer footing. 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.”
Pensions Minister, Emma Reynolds said: “Harnessing the power of this multi-billion-pound industry is a win-win, benefiting future pensioners, and our wider economy.
“These reforms could unlock £80 billion of investment into exciting new businesses and critical infrastructure.”
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