Chancellor of the Exchequer Rachel Reeves said the UK will introduce legislation next year to pool £1.3 trillion ($1.7 trillion) of pension savings into a series of “megafunds,” as the new Labour government tries to deliver on its pledge to boost private investment and economic growth.
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Published Nov 13, 2024 • 3 minute read
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(Bloomberg) — Chancellor of the Exchequer Rachel Reeves said the UK will introduce legislation next year to pool £1.3 trillion ($1.7 trillion) of pension savings into a series of “megafunds,” as the new Labour government tries to deliver on its pledge to boost private investment and economic growth.
Speaking to Bloomberg TV ahead of her Mansion House speech to the City, Reeves said she wanted to replicate the Australian, Canadian and US models with “mega pension funds that achieve economies of scale, better returns for their savers, and help unlock that long term growth that we need in Britain.”
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Reeves said she wants to pool pension assets into larger funds of at least £25 billion that can take bigger risks and make bigger investments. By creating fewer and larger funds, the government hopes to release an extra £80 billion of private capital for infrastructure and start-up and scale-up businesses.
The plan builds on Labour’s economic strategy set out in last month’s budget and in its campaign promise to “rebuild Britain” that helped deliver a landslide victory in the July election. Its “change” promise hinged on delivering growth and a massive uptick in investment to fix ailing public services.
Reeves said Wednesday her budget was designed to stabilize public finances and create the foundation for growth, which would be driven by broader reforms around planning and pensions. It means her Mansion House speech on Thursday to the finance industry will be closely watched.
The government plans to merge the 86 local government pension schemes in England and Wales, which will have assets of £500 billion by 2030, into “a handful of megafunds” and consolidate the £800 billion of assets held by about 60 so-called multi-employer defined contribution schemes.
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George Dibb, associate director for economic policy at the left-leaning Institute for Public Policy Research, said the government’s pension plans should help to lift the UK off the bottom of the Group of Seven investment league table.
Yet Reeves also said she would not compel pension funds to invest in the UK, rejecting an argument put forward by some prominent business voices who have proposed mandating funds to ensure growth capital does not move offshore.
Her Conservative predecessor, Jeremy Hunt, also stopped short of doing that. Instead, he secured commitments from some large defined contribution pension funds to invest 5% of their assets in unlisted UK equities.
Asked whether she would take a stronger approach than her predecessor, Reeves said: “We are not looking at mandating pension funds.”
Reeves said Labour would build on the previous Tory government’s consultation on pensions, though the chancellor said the key difference between the two approaches was her plan to legislate to force through changes.
“We don’t just talk about consolidation in the pensions industry — anyone can do that,” she said. “We are getting on and doing the job.”
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Canada’s pension schemes invest around four times more in infrastructure than the UK, while Australia pension schemes invest around three times more in infrastructure and ten times more in private equity compared to Defined Contribution schemes in the UK, according to the British government.
Successive administrations have tried — with little success — to pool local authority pensions, which look after the savings of 6.7 million members and range from funds with £300 million of assets to ones with £30 billion.
The government wants to move the savings into larger funds managed by “professional fund managers,” it said. Each local authority will be required to set a target for investment in local projects.
Reeves was also asked whether her economic plans were threatened by Donald Trump’s election win. The chancellor said it’s too early know what the US president-elect planned on tariffs, but said the UK will “continue to make representations for free and open trade that benefits both of our nations.”
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