The UK government has unveiled a sweeping reform of its pension industry, aiming to double the number of £25bn+ “megafunds” by 2030, a move expected to deliver higher retirement savings for workers and unlock more than £50bn for domestic investment in infrastructure, housing, and high-growth businesses.
The reforms, to be legislated through the upcoming Pension Schemes Bill, will require all multi-employer defined contribution (DC) schemes and Local Government Pension Scheme (LGPS) pools to operate at a minimum £25bn scale. According to the final report of the Pensions Investment Review, this consolidation could save £1bn annually through reduced costs and improved governance, boosting the average DC saver’s pot by £6,000 over a lifetime.
Chancellor Rachel Reeves said the reforms would ensure “better returns for workers and billions more invested in clean energy and high-growth businesses,” describing it as “the Plan for Change in action.” Deputy Prime Minister Angela Rayner added the £392bn LGPS had “enormous” untapped potential, with local investment targets now to be agreed across six consolidated LGPS pools.
Modelled on Canadian and Australian precedents, the policy is designed to reverse a long decline in UK pension fund investment at home. DC pension assets invested domestically have dropped from over 50% in 2012 to about 20% in 2023.
The reforms follow the recent Mansion House Accord, under which 17 major UK pension firms committed to invest 5% of assets in UK assets and 10% in private capital markets. The government has reserved a legislative “backstop power” to mandate asset allocations if necessary—though it said it does not expect to use it.
Critics have warned against potential political interference in investment decisions, with Barnett Waddingham CIO Matt Tickle cautioning that mandates could “leave members and society at risk of poorer outcomes.” Others, including the ScaleUp Institute and former pensions minister Sir Steve Webb, welcomed the initiative as a “milestone” in unlocking capital for growth and improving member outcomes.
The Bill will also address the “small pots” problem, enable safe release of defined benefit surpluses, and require all schemes to offer default retirement income products.
