Rachel Reeves: We’re making pensions work for Britain. Image: Parliament.uk (CC BY 3.0)
The government has confirmed plans that all multi-employer defined contribution (DC) schemes and Local Government Pension Scheme (LGPS) pools will operate at “megafund level”, managing at least £25bn in assets by 2030.
In the final report of the Pensions Investment Review, published today (29 May), the government said DC schemes would be given more freedom through legislation to move savers into better performing funds – enabling bulk transfer of assets into the megafunds.
It said schemes worth over £10bn that were unable to reach the minimum size requirement by the end of the decade would be allowed to continue operating, as long as they can "demonstrate a clear plan" to reach £25bn by 2035. A provider or master trust will be able to apply to be on a 'transition pathway' and must provide the regulator with a credible plan to reach the level.
The review also confirmed the government has been "strongly encouraged" by the voluntary commitment by 17 providers to the Mansion House Accord of investing 10% of default funds in private markets including half in the UK specifically.
With several providers indicating ambitions to go beyond this commitment, the government confirmed it is "not necessary currently to mandate investment", but it would take a "reserve power" in the Pension Schemes Bill which would enable the government to set "quantitative baseline targets" for schemes to invest in a broader range of private assets, including in the UK, "for the benefit of savers and for the economy".
The Pensions Investment Review also confirmed the March 2026 deadline for LGPS asset pooling, with a backstop power set to be taken in the Pension Schemes Bill to protect the interests of LGPS members and local taxpayers where necessary by directing an administering authority to participate in a specific investment pool. It added LGPS reforms will see assets currently split over 86 administering authorities and the eight pools consolidated into just six.
It said local investment targets will be agreed with LGPS authorities for the first time – a move it said would secure £27.5bn for local priorities and allow LGPS authorities to work with regional mayors, Welsh Authorities and councils to back the projects that matter most to the 6.7 million public servants whose savings they manage.
The government said the move would double the number of £25bn+ megafunds, boost investment and improve returns for savers – saying it would secure over £50bn of investment in UK infrastructure, new homes and fast-growing businesses and give the average earner a £6,000 "boost" to their pension pots.
It is currently estimated around five to ten DC pension providers may have over £25bn in assets under management, with the government confirming it is projected there may be around 10 to 15 megafunds by 2030 and around 15 to 20 by 2035.
Chancellor of the Exchequer Rachel Reeves said: "We're making pensions work for Britain. These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses – the Plan for Change in action."
Deputy prime minister Angela Rayner added: "The untapped potential of the £392bn LGPS is enormous. Through these reforms we will make sure it drives growth and opportunities in communities across the country for years to come – delivering on our Plan for Change."
Minister for pensions Torsten Bell said: "Our economic strategy is about delivering real change, not tinkering around the edges. When it comes to pensions, size matters, so our plans will double the number of £25bn-plus megafunds. These reforms will mean bigger, better pension schemes, delivering a better retirement for millions and high investment in Britain."
Business backing
The government said its move would tackle the gradual decline in domestic investment from UK pension funds, where it said around 20% of DC assets were currently invested compared to over 50% in 2012.
It said its actions had been backed by business – with more than 40 scale-up businesses signing a joint letter to the Chancellor welcoming the reforms as a "significant milestone".
ScaleUp Institute chief executive (CEO) Irene Graham said: "This represents a significant milestone in ensuring British institutions back British business – at the scale required – to generate growth, employment and wealth. UK pension funds are central to achieving this goal and addressing the UK's longstanding growth capital gap that have held back growth ambitions."
BVCA CEO Michael Moore added: "These reforms are a real win-win for UK scaleups and pension savers.
"Countries like Canada and Australia show that when pension funds invest in private capital, you help the national economy and deliver better retirement outcomes. The government should be applauded for learning from their example."
"Megafunds will have the scale needed to develop the expertise required to invest in private capital funds, which will support the development of fast-growing businesses and generate stronger returns for pensions savers."
