Labour's Rachel Reeves plans 'megafund' shake-up of pensions - what it means

Chancellor Rachel Reeves has announced a major shake-up of the pensions market, stating she is "going for growth". The reform aims to unlock tens of billions of pounds for investment in business and infrastructure.

Ms Reeves plans to merge local government retirement schemes into eight Canada-style "megafunds", a move that the Treasury claims will be part of the largest reform of the UK pension market in decades. A new pensions bill is set to be introduced next year, with the goal of pooling assets from 86 separate local government pension schemes (LGPS) in England and Wales into eight "megafunds", each worth an average of £50bn, by 2030.

Additionally, smaller defined contribution schemes across the country from private businesses are also planned to be consolidated into pools of £25bn to £50bn. These funds will leverage their size and economies of scale to potentially boost DC savers' pension pots.

The Government's analysis suggests that pension funds begin to return greater productive investment levels once the size of assets they manage reaches between £25 to £50 billion. However, Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at consultants LCP (Lane Clark and Peacock), warned: "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."

Sir Steve conveyed to the PA news agency his concerns about pension systems: "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.", reports Birmingham Live.

He highlighted the nation's investment needs, with a "whole raft of things that Britain needs more money invested in". However, for these opportunities to attract investment, they must be "investable", elaborating further: "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."

Reflecting on considerations for pension fund consolidation, he stressed: "Is this in the interests of the members? " Sir Steve also broached the issue of potential homogeneity within megafunds, adding: "When there are a lot to choose from, there's quite a bit of competition."