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Chancellor Rachel Reeves has proposed a major overhaul of the pensions industry as the government hopes to boost investment in productive British assets through a series of “mega funds”.
This includes the UK’s defined contribution workplace pensions – forecast to manage £800bn by 2030 – and local government pension schemes in England and Wales, which are on track to reach £500bn by the end of the decade.
By forcing schemes to merge into funds with at least £25bn in assets, the government estimates it could unlock up to £80bn to invest in higher-return assets — such as private equity and infrastructure — and May provide better performance for savers.
How do the proposals affect defined contribution schemes?
The government is preparing to set a minimum size of at least £25bn for workplace pension schemes into which employees are automatically enrolled, known as default funds.
It is also proposing to enable mergers without the consent of members of contract-based schemes, which are run by major insurance companies and regulated by the Financial Conduct Authority. This approach has previously been avoided because contract schemes do not have trustees to advise whether a merger is in the members’ interests.
The proposals would result in a “very small” number of multi-employer schemes, according to government consultation documents published on Thursday. According to the government and the New Financial Think Tank, there are currently around 30 authorized master trusts and 30 providers, with assets of £130bn and £350bn respectively last year.
Contract-based schemes have less exposure to private markets such as private equity funds and infrastructure assets compared to master trusts, which are regulated by the pension regulator.
“The proposals are truly radical and, over the course of this Parliament, will reshape UK workplace pensions,” said Patrick Heath-Leigh, chief executive of the People’s Partnership, which provides master trusts. “This will result in a rapid consolidation of pension provision which will create fewer, much larger providers.”
“It looks like the government is serious about intervening in the DC market to create mega funds,” said Greg McClymont, IFM executive director and former Labor MP.
What do the reforms mean for local government pension schemes?
The government has proposed that the 86 local councils in England and Wales transfer all £392bn of their combined assets to one of eight pools – or so-called mega funds – by March 2026.
This will accelerate the current trend. Councils already invest some of their funds through these pools – as of March this year around 45 per cent of local government pension assets were invested through sub-funds of the pools.
But the government has also set rules for how pools should operate – requiring them to be investment management companies authorized and regulated by the Financial Conduct Authority, with investment strategies Have the skills and ability to implement
Local councils will have the choice whether or not to set an investment strategy, but must “fully delegate” its implementation to the pool, and take their primary advice from the pool.
Tracy Blackwell, Pension Insurance Corporation’s chief investment officer, said: “It’s great that the Chancellor has backed our case for fewer, larger LGPS investors with in-house expertise to invest equity in infrastructure and housing assets. is.” “A country that needs more infrastructure investment needs more natural equity sponsors for strategic infrastructure projects.”
Others are less affected. Quentin Marshall, chairman of the Kensington and Chelsea Council pension fund committee, which has been the best-performing LGPS fund over the past five years but has not collected any of its assets, said: “I think they [the government] Big bloated will create unaccountable quangos. . . Which will provide worse returns at higher cost.
Robbie McEnroy, head of local government pensions advice at Hymans Robertson, welcomed more polling but said March 2026 was an “overly ambitious” timescale as it could lead to unnecessary spending increases.
He added that transferring oversight of heritage assets from local councils to polls “seems to be too much work for polls and relatively inefficient compared to spending them on funds”.
