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Lucy Hooker, a business reporter, has highlighted the government’s plans to overhaul the UK pension industry by introducing £25bn “megafunds” that will focus on making local investments to stimulate economic growth. Chancellor Rachel Reeves emphasized that these reforms not only aim to enhance pension funds but also to increase investments in clean energy and high-growth businesses. The proposed changes have already received approval from seventeen major UK pension firms through a voluntary agreement.
Despite the voluntary agreement, the government is including a legislative back-stop to push through the new rules if insufficient progress is noted by the end of the decade. This move, while not expected to be utilized, has faced criticism from some within the industry who oppose government intervention in investment decisions. Zoe Alexander from the Pensions and Lifetime Savings Association acknowledged that the changes would have significant implications on pension schemes but highlighted the potential benefits such as improved governance and diversified investments.
The City UK’s chief executive, Miles Celic, supported the chancellor’s vision of using the megafunds to bolster economic growth. Meanwhile, former Liberal Democrat pensions minister Sir Steve Webb, now with LCP (Lane Clark & Peacock), hailed the government’s bold approach, suggesting that the surplus funds could be utilized more productively for the benefit of members, companies, and the broader economy. Labour’s pension review, initiated after taking office last year, laid the groundwork for the megafunds plan, consolidating local authority and defined contribution schemes to enhance retirement savings for UK workers.
The proposed reforms aim to merge the 86 local authority pension schemes and consolidate the £800bn worth of defined contribution schemes to create larger pension funds with a focus on local investments. By 2030, the government anticipates having more than 20 pension funds exceeding £25bn. The reforms, included in the upcoming Pension Schemes Bill, are expected to drive higher returns for pension savers, with average earners potentially seeing a £6,000 increase to their defined contribution pension pots
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