A right-wing think tank has welcomed Rachel Reeves’ plan to create pension “megafunds” in a bid to boost investment in British infrastructure.
The chancellor will tonight set out changes to local government pension pots, consolidating the 86 existing pots into a handful of funds run by professional fund managers.
The move is part of a bid to unlock the pension funds of 6.7million local government workers from smaller firms and assets for investment in major infrastructure projects.
And the director of the right-wing Centre for Policy Studies (CPS) think tank Robert Colville said the move is “very welcome”.
Robert Colvile added: “There is significant potential here to cut costs, generate better returns and create a major vehicle for long-term investment.”
England and Wales’s Local Government Pension Scheme is set to manage assets worth around £500bn by the end of the decade, with local government officials and councillors currently each managing funds worth between £300m and £30bn.
The Treasury hopes consolidating the money into a handful of pension megafunds will support Ms Reeves’ mission to boost economic growth.
And officials said the changes will boost local economies, as each authority will have to set a target for the money’s investment in their area -
Speaking ahead of her address to the City of London at Mansion House, Ms Reeves promised “the biggest set of reforms to the pensions market in decades”.
She said the changes will “unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off”.
And deputy PM Angela Rayner said: “We’ve all seen the fantastic work carried out day in, day out, by our frontline workers and it’s about time their pension started working just as hard by driving investment in their communities.
“This is about harnessing the untapped potential of the pensions belonging to millions of people, and using it as a force for good in boosting our economy.”
Boosting the amount of British pension funds invested in UK assets and infrastructure has been a key priority for both Labour and the Conservatives.
Last year, Ms Reeves’ predecessor Jeremy Hunt used his Mansion House speech to promise pension reforms aimed at unlocking £75bn of extra cash for investment in high-growth firms.
The former chancellor’s Mansion House Reforms promised to wing up poor performing pension schemes into larger, better performers. They also included an agreement with nine of Britain’s biggest pension providers to invest at least 5 per cent of assets in fast-growing firms by 2030.
Ms Reeves’ reforms are based on the pensions markets in Australia and Canada, where larger funds take advantage of their scale to invest in riskier assets with higher growth potential.
They will be delivered by a new Pension Schemes Bill to be introduced to parliament in 2025.
Dr George Dibb, associate director for economic policy at the IPPR think tank, said: “With the lowest levels of investment in the G7—and among the lowest in the developed world—the UK has languished at the bottom of the league for 24 of the past 30 years. These pension fund reforms should help to end that.
“Consolidating pension pots into ‘megafunds’ will unlock substantial capital for UK investment, enabling more high-impact, high-return ventures. Paired with a comprehensive industrial strategy and the highest levels of public investment since the 1970s, these reforms will help shift the UK economy toward sustained investment and growth."
But Tom Selby, director of public policy at investment platform AJ Bell, warned the changes could lead to savers’ money being put at risk in the pursuit of economic growth.
He said: “There’s a reason that an occupational scheme has a trustee to look after the interests of members. Part of that is investing their money to maximise returns and get the best retirement outcomes possible.”
And Mr Selby added: “Conflating a government goal of driving investment in the UK and people’s retirement outcomes brings a danger because the risks are all taken with members’ money. If it goes well, everyone can celebrate. But it’s clearly possible that it will go the other way, so there needs to be some caution in this push to use other people’s money to drive economic growth.”
