Chancellor Rachel Reeves is to announce plans to create pension megafunds to unlock investment in businesses and infrastructure
She will use her first Mansion House speech to announce “pension megafunds” to pool assets from 86 separate council pots into just eight with the idea that the new larger pots can take bigger risks and put cash into infrastructure project with some analysts saying the move could unlock up to £80 billion in investment
These megafunds mirror set-ups in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential
Deputy Prime Minister, Angela Rayner said:
We’ve all seen the fantastic work carried out day in, day out, by our frontline workers and it’s about time their pension started working just as hard by driving investment in their communities.
This is about harnessing the untapped potential of the pensions belonging to millions of people, and using it as a force for good in boosting our economy.
The Local Government Pension Scheme in England and Wales will manage assets worth around £500 billion by 2030. These assets are currently split across 86 different administering authorities, managing assets between £300 million and £30 billion, with local government officials and councillors managing each fund.
Consolidating the assets into a handful of megafunds run by professional fund managers will allow them to invest more in assets like infrastructure, supporting economic growth and local investment on behalf of the 6.7 million public servants – most of whom are low-paid women – whose savings are managed.
These megafunds will need to meet rigorous standards to ensure they deliver for savers, such as needing to be authorised by the Financial Conduct Authority. Governance of the Local Government Pension Scheme will also be overhauled to deliver better value from investment decisions, which independent research suggests could free up money in the long-term to support local public services.
Local economies will be boosted by the changes as each Administering Authority will be required to specify a target for the pool’s investment in their local economy, working in partnership with Local and Mayoral Combined Authorities to identify the best opportunities to support local growth. If each Administering Authority were to set a 5% target, that would secure £20 billion of investment in local communities.
A new independent review process will be established to ensure each of the 86 Administering Authorities is fit for purpose.
