Pension savers could get £6,000 boost under ‘megafunds’ plans, government says

Reforms are underway to get workplace pension schemes investing more in the UK

Chancellor Rachel Reeves
(Image credit: Wiktor Szymanowicz/Future Publishing via Getty Images)

Savers could be £6,000 or more better off in retirement under plans to create so-called pension ‘megafunds’ that have the heft to invest in a wider range of assets, the government has said.

The Treasury aims to double the number of megafunds – pension schemes with more than £25 billion invested – by 2030 to boost investment in the UK and improve returns for savers.

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Multi-employer defined contribution pension schemes will be required to operate at megafund level. The £392 billion Local Government Pension Scheme, which has assets currently split over 86 administering authorities, will be merged into just six pools.

Under the megafund plans, the government has said more than £50 billion of investment will go into UK projects – and in a shock move has said it will force a UK-bias in order to reverse decades of declining domestic investment.

What do the experts think of the government’s pension megafunds plan?

Some experts have issued warnings over “unprecedented” plans to mandate how and where pension schemes invest.

David Brooks, head of policy at consultancy Broadstone, said: “An explicit direction of travel towards mandating pension scheme investment into UK assets and infrastructure is a risky move – not least because the Treasury itself has had to admit that any gains for savers are unclear and likely to be limited.

“Savers will naturally be worried that their pension pots will not necessarily be invested with the best returns in mind but rather required to achieve specific allocations to Treasury-dictated geographies and sectors.”

Pension consultancy LCP welcomed reforms that could help to drive improved outcomes for savers from lower costs or accessing a wider range of investment options, but said the threat of government intervention to ‘mandate’ how pension schemes invest members’ money is “unprecedented”.

Laura Myers, partner and head of DC pensions at LCP said: “A greater focus on value for money is warranted and should not trouble the many well-run pension schemes in the UK.

“But the threat of the government telling trustees how they should invest is a step too far.

“Trustees draw on professional expertise to draw up an investment strategy which will best meet the needs of members, and this should never be over-ridden by the political priorities of the government of the day.”

Laura Miller

Laura Miller is an experienced financial and business journalist. Formerly on staff at the Daily Telegraph, her freelance work now appears in the money pages of all the national newspapers. She endeavours to make money issues easy to understand for everyone, and to do justice to the people who regularly trust her to tell their stories. She lives by the sea in Aberystwyth. You can find her tweeting @thatlaurawrites