What Rachel Reeves 'pensions megafunds' plan means for workers' retirement

What the new ‘pension megafunds’ plan by Rachel Reeves means for YOUR retirement has been revealed. The new Labour Party Chancellor will announce plans to merge local government retirement schemes into “megafunds” as she tries to revive long-running efforts to overhaul the public pension system.

Rachel will outline the plans to move around £800billion of pension savings into larger so-called "megafunds" in her first annual "Mansion House" speech this evening. Local government pension schemes, which manage around £400billion of that cash, will be forced to split into eight megafunds.

The plan is to then group all other defined contribution (DC) schemes - what most workers save into - into a number of other big funds. DC schemes are where you and your employer both put money into a scheme and the cash is invested to grow your pot over time.

READ MORE Exact date UK hammered by -9C 'snow bomb' which will last 'five days'

Ms Reeves said the reforms are the biggest change to the pensions market "in decades" that will "boost people's savings in retirement" and "drive economic growth". The government added: "Consolidating the assets into a handful of megafunds run by professional fund managers will allow them to invest more in assets like infrastructure, supporting economic growth and local investment."

What do the changes mean for your money?

Reforms will be introduced under a new Pension Schemes Bill next year, consolidating defined contribution (DC) schemes and pooling assets from 86 local government pension scheme authorities. There are around 60 different multi-employer schemes, each investing savers’ money into one or more funds. The Government will consult on setting a minimum size requirement for these funds.

For example, if you returned 5% on £1,000 in a year, you would earn £50, but if you returned 5% on £100,000 over a year, you would earn £5,000, and so on. Jon Greer, head of retirement policy at wealth manager Quilter, said that by pooling resources into larger funds, savers will access "high-yield investments that smaller schemes often miss".

"Drawing inspiration from successful models in Australia and Canada, this approach has the potential to deliver stable returns while supporting meaningful long-term projects," he added. Tom Selby, director of public policy at AJ Bell, warned: “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."