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The UK government has announced an ambitious plan to double the number of pension 'megafunds' by 2030 with an aim to improve retirement returns for millions of savers while simultaneously injecting billions of pounds into the British economy.

Why Bigger Pension Funds Matter

By 2030, all multi-employer defined contribution (DC) schemes and Local Government Pension Scheme (LGPS) pools are required to manage at least £25 billion ($30.5 billion) in assets. Currently, many pension schemes are much smaller, which limits their ability to invest broadly and generate higher returns.

Commenting on the plan, Chancellor Rachel Reeves said: 'We're making pensions work for Britain, growing your savings and our economy.'

The government expects these larger megafunds to cut fees, increase investment returns, and release more than £50 billion ($61 billion) to support UK infrastructure and businesses.

Benefits for Pension Savers

For individuals saving in workplace pensions, these reforms could bring tangible benefits.

  • Treasury analysis suggests the average saver may receive up to £6,000 ($7,300) more at retirement due to lower fees and enhanced investment strategies.
  • Larger funds typically benefit from economies of scale, reducing administration costs by potentially over £1 billion ($1.2 billion) annually across the system.
  • Smaller pension schemes with assets below £10 billion ($12.2 billion) that fail to grow may lose the ability to accept automatic enrolment contributions from 2030.

This policy encourages many smaller pension funds to either merge with larger schemes or significantly grow their assets. By doing so, it ensures that savers' pensions are managed within larger, more efficient pools that benefit from reduced fees, enhanced investment opportunities, and greater financial resilience. This consolidation is designed to create stronger funds better equipped to deliver improved returns and long-term security for pension holders.

Learning from Global Leaders

Countries such as Australia and Canada have demonstrated the benefits of large pension funds.

  • Australia's largest superannuation funds manage over £100 billion ($122 billion) each and consistently outperform smaller schemes due to their size and investment capabilities.
  • The Canada Pension Plan Investment Board, managing assets in excess of £400 billion ($488 billion), invests widely in infrastructure and emerging sectors worldwide.

A Treasury spokesperson said: 'We want British savers to enjoy world-class returns through scale.'

Local Investment: A £27.5 Billion ($33.5 Billion) Boost

The reforms also require LGPS pools to invest at least 10% of their assets locally, potentially unlocking £27.5 billion ($33.5 billion) for projects such as affordable housing, green energy, and small businesses.

This means your pension fund could directly contribute to improvements in your community.

Potential Risks and Challenges

While the plan has many benefits, experts caution about potential risks.

  • Consolidation might reduce competition and limit choice for savers.
  • Larger funds could face higher exposure to investment volatility.
  • Managing the mergers of many schemes will be complex and require robust oversight.

However, the government has assured that strong regulation and a phased approach will mitigate these risks.

The upcoming Pension Schemes Bill will formalise these changes, signalling a clear goal: bigger pension funds and better retirement outcomes.

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