Reforms set to be introduced through the Pension Schemes Bill will mean all multi-employer Defined Contribution pension schemes and Local Government Pension Scheme pools operate at megafund level, managing at least £25 billion in assets by 2030. Evidence from Australia and Canada shows that this size allows pension funds to invest in big infrastructure projects and private businesses, boosting the economy while potentially driving higher returns for savers. 

These changes will drive more investment directly into the UK economy for new homes and promising scale-up businesses, with over £50 billion secured through the recent voluntary commitment from pension funds to invest 5 percent of assets in the UK and new local investment targets for Local Government Pension Scheme authorities. 

This tackles the gradual decline in domestic investment from UK pension funds, where around 20 per cent of Defined Contribution assets are currently invested compared to over 50 per cent in 2012, as the Government goes further and faster to drive growth, create jobs and put more money into people’s pockets through the Plan for Change. More than 50 scale-up businesses have signed a joint letter to the Chancellor welcoming the reforms as a ‘significant milestone in ensuring British institutions back British businesses at the scale required to generate growth, employment and wealth.’ 

New figures from the final report of the Pensions Investment Review published today also show that these reforms will drive higher returns for savers, in part by cutting waste in the system. By 2030 these schemes could be saving £1 billion a year through economies of scale and improved investment strategies. As a result, an average earner who saves over their career could see a £6,000 boost to their Defined Contribution pension pot at retirement through the creation of megafunds – with even better returns expected to be generated through changes in the upcoming Pension Schemes Bill.

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 said:  

The untapped potential of the £392 billion Local Government Pension Scheme 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.

Today’s pensions announcements follow a month of major delivery milestones for the Plan for Change: new trade deals with India, the US and the EU, UK growth the highest in the G7, and the fourth interest rate cut since last summer after the government secure the economy’s foundations. 

Multi-employer defined contribution pension schemes will be required to operate at megafund level, managing £25 billion or more in assets, and the full investment might of the £392 billion Local Government Pension Scheme (LGPS) will be unleashed by consolidating assets currently split over 86 administering authorities into just 6 pools.  

Defined Contribution schemes will be given more freedom through legislation to move savers into better performing funds, enabling bulk transfer of assets into the megafunds while ensuring savers’ interests are always protected. Schemes worth over £10 billion that are unable to reach the minimum size requirement by the end of the decade will be allowed to continue operating, as long as they can demonstrate a clear plan to reach £25 billion by 2035. 

The Mansion House Accord shows DC schemes are voluntarily investing more in infrastructure and businesses. To provide additional certainty that individual schemes will not lose business by investing in private markets, which offer the potential for higher returns but are expensive to invest in upfront, the Government will take a reserve power in the Pension Schemes Bill to set binding asset allocation targets. 

The Pensions Investment Review confirms 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.  

Local investment targets will be agreed with LGPS authorities for the first time, securing £27.5 billion for local priorities. LGPS authorities will work with regional mayors, Welsh Authorities and councils to back the projects that matter most to the 6.7 million public servants – most of whom are low-paid women – whose savings they manage.

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 £25 billion plus megafunds. These reforms will mean bigger, better pension schemes, delivering a better retirement for millions and high investment in Britain.

Irene Graham OBE, CEO ScaleUp Institute 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. 

The ScaleUp Institute, and the broad representatives of the scaleup economy across the UK, have written to the Chancellor today to welcome the Government’s final report on the Pensions Investment Review and the Government’s commitment to double the number of UK pension megafunds by 2030, thereby unlocking billions of patient capital to scaling businesses across the country.

The changes come as London CIV has become the first LGPS pool to announce its intention to work with the British Business Bank on the launch of the British Growth Partnership (BGP), joining Aegon UK and NatWest Cushon, who last year announced their intention to collaborate on the BGP and invest in fast-growing businesses. These three funds manage a combined £274 billion in assets. 

The upcoming Pension Schemes Bill will continue the Government’s fundamental reset of our pensions landscape, including by tackling the small pots problem, allowing Defined Benefit surpluses to be safely released, requiring every scheme to deliver value for money, and ensuring all savers are offered a default retirement income product. 

Countries like Canada and Australia show how powerful pension consolidation can be – having built megafunds that invest in assets that boost their economies. Today’s reforms put the UK on the same path.

More information

• The final report of the Pensions Investment Review will be here. Further detail on all calculations and assumptions will be contained in the analytical annex. 

• Just over 50% of DC assets were invested domestically in 2012 which has gradually declined to just over 20% by 2023. 

• The £50 billion investment figure combines the Mansion House Accord commitment to invest 5% of assets in the UK (£25 billion by 2030), and the estimate for Local Government Pension Scheme local investment (5% of £550 billion by 2030). 

• The £6,000 boost to retirement pots is from the impact of consolidation alone, which we estimate to deliver at least a 6-basis point reduction in fees as well as increase allocations to productive assets such as infrastructure projects. This means an average (median) earner saving into a DC pension, who is 22 and saves for their entire career until State Pension Age will see a £6,000 boost to their retirement pot before other measures in the Pension Schemes Bill are factored in. 

• The £1 billion savings figure for DC schemes is based on a 12 basis point reduction in costs applied to £800 billion assets under management by 2030 – delivering a £960m saving. The Pension Investment Review consultation responses suggested consolidation of pension providers could lead to reduced charges by up to 10-20bps over the longer term and Australia had around a 12bp cost reduction through scale. 

• The government’s response to the Options for Defined Benefit schemes consultation, also published today sets out how Government will unlock some of the £160 billion of surplus funds from well-funded Defined Benefit (DB) pension schemes, to benefit employers, members and the economy. It also sets out that the Government is continuing to consider a consolidator for DB schemes, run by the Pensions Protection Fund. The response is here: Options for Defined Benefit schemes – GOV.UK

• The joint letter from scale up businesses can be found here

Irene Graham OBE, CEO ScaleUp Institute, said:

The ScaleUp Institute, and the broad representatives of the scaleup economy across the UK, have written to the Chancellor today to welcome the Government’s final report on the Pensions Investment Review and the Government’s commitment to double the number of UK pension megafunds by 2030, thereby unlocking billions of patient capital to scaling businesses across the country.

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. 

To deliver tangible impacts on the ground we must now see the intent in these reforms, alongside the recently augmented Mansion House Accord, turn into practical institutional investment outcomes in every part and sector of the country, including our rapidly growing innovation and industrial sectors.

That is why it is so important that the Government’s plans today remain focussed on making sure these reforms are enacted swiftly, and that will place powers into the Pension Scheme Bill to enable compliance.

The ScaleUp ecosystem across the country looks forward to working with the government and industry partners to ensure the ambitions of this review are fully realised and deliver lasting impact. Thereby ensuring that UK businesses with global ambition get access to the local funding needed to scale, build, and stay in the UK.

Michael Moore, BVCA Chief Executive, said: 

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.

Jamie Jenkins, Director of Policy & Technical, Royal London said: 

Today’s announcement sets out a long-term, strategic approach for pension provision in the UK, improving value for savers, and providing greater certainty for employers and their advisers.

The Lord Mayor of London, Alastair King, said:

As joint architects of the Mansion House Accord, we welcome the Government’s final Pension Investment Review report as a vital next step in delivering on our shared ambition to unlock capital for growth. This landmark agreement will facilitate the injection of over £25 billion into the UK economy, supporting crucial capital for high-growth businesses and infrastructure projects. With greater consolidation, scale, and alignment between pensions and the real economy, we now have the opportunity to secure better outcomes for savers and long-term investment in the future of the UK. To ensure the best investment outcomes, it is essential that pension funds maintain the autonomy to allocate assets optimally, thereby maximising returns for the savers whose interests they safeguard.