Rachel Reeves to create pension ‘mega funds’ to invest in infrastructure
Pension “mega funds” will be created under government plans to increase infrastructure investment.
Reforms could “unlock £80bn” of investment, according to Treasury plans, which say bigger funds can get greater returns.
Chancellor Rachel Reeves wants to imitate the way large Canadian and Australian pension schemes work.
She will give more details about her plans in a speech at Mansion House on Thursday evening.
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Rachel Reeves wants to reform pensions. Pic: PA
Almost 90 local government pension pots will be grouped together, with defined contribution schemes merged and assets pooled together.
This is part of the government’s plan to increase economic growth through investing in infrastructure.
Pension schemes get greater returns when they reach around £20bn to £50bn as they are “better placed to invest in a wider range of assets”, according to the government.
This is backed up by evidence from Canada and Australia, the government argues – with Canada’s schemes investing four times more in infrastructure, and Australia three times more compared to the UK’s defined contribution schemes.
Ms Reeves said it marks “the biggest set of reforms to the pensions market in decades”.
The chancellor added the changes would “unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off”.
However, Tom Selby, the director of public policy at financial company AJ Bell, said: “There needs to be some caution in this push to use other people’s money to drive economic growth. It needs to be made very clear to members what is happening with their money.”
The government says the funds will be regulated by the Financial Conduct Authority and will need to “meet rigorous standards to ensure they deliver for savers”.
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Local government pensions v defined contributions
The Local Government Pension Scheme in England and Wales will manage assets worth around £500bn by 2030. These assets are currently split across 86 different administering authorities, with local government officials and councillors managing each fund.
Under the government plans, the management of local government pensions and what they invest in will be moved from councillors and local officials to “professional fund managers”.
This will allow them to invest more in assets such as infrastructure, supporting economic growth and local investment on behalf of the 6.7 million public servants, the government said.
Defined contribution pension schemes are set to manage £800bn worth of assets by the end of the decade.
There are around 60 different multi-employer schemes, each investing savers’ money into one or more funds. The government will consult on setting a minimum size requirement for these funds.
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Businesses cautious – but pensions sector backs plans
Businesses will need to be reassured that the government’s plans are watertight following the fallout from the budget, according to the trade group the Confederation of British Industry (CBI).
The CBI’s chief economist Louise Hellem said: “While the chancellor is right to concentrate on mobilising investment, putting pension reform to work for the government’s growth mission, unlocking investment also needs competitive and profitable businesses.
“With the budget piling additional costs on firms and squeezing their headroom to invest, the government needs to work hard to regain the confidence in the UK as a place businesses and communities can succeed.
“Pension schemes will want to operate within a UK economy that is prospering.”
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But key parts of the pensions sector gave their backing to the government’s plans, including Standard Life, Royal London, Local Pensions Partnership Investments and the Pensions and Lifetime Savings Association.
Deputy Prime Minister Angela Rayner said: “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.”
Kemi Badenoch has denied the Conservatives would consider means testing the pensions triple lock, as she accused her opponents of trying to “scare people”.
The Tory leader sought to clarify remarks she made on LBC on Thursday evening, which were interpreted as her leaving the door open to means testing the system that guarantees the state pension rises in line with average earnings, inflation or 2.5% – whichever is highest.
The Conservatives have long championed the triple lock – introduced by former chancellor George Osborne during the coalition government – but some senior Conservatives have recently hinted that it might not be sustainable in the long term.
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Ms Badenoch told LBC her party would look at “means testing” – something she said “we don’t do properly here” – in response to a question about the triple lock.
Labour, the Liberal Democrats and Reform UK were quick to seize on Ms Badenoch’s comments, claiming the Tory leader would “cut your state pension”.
However, the Tory leader posted on X that she was referring to means testing generally rather than with specific regards to the triple lock.
‘Bungling Badenoch’: Tory pension proposal triggers political pile-on
From criticising “excessive” maternity pay to describing herself as becoming “working class” while working at McDonald’s – not to mention slamming sandwiches as “not real food” (compared to a desktop steak), Kemi Badenoch is never one to shy away from controversy.
Supporters argue this straight-talking directness is a key part of her appeal. But it also gets her into trouble.
On an LBC phone-in last night she was asked what she wanted to do for younger voters fed up with the triple lock on state pensions (which means they go up every year by 2.5%, inflation, or average earnings – whichever is higher).
Her response was to suggest “we’re going to look at means testing” as “we don’t have a system that knows who should get what”.
The idea that the Tories might not be religiously committed to a universal triple lock has led to a political pile-on.
It’s unclear what exactly means testing the triple lock would work in practice; it’s clearly not a developed policy yet (indeed, Ms Badenoch argues the party shouldn’t be focused on specific policies so soon after their drubbing at the last election).
Politicians on all sides have criticised the triple lock before, with the shadow chancellor Mel Stride previously describing it as “unsustainable” and the new pensions minister Torsten Bell as “messy” in his previous role at the Resolution Foundation thinktank.
But Labour are adamant that they would never abandon the triple lock.
Somehow, the Conservative attack on the government’s treatment of pensioners over the winter fuel allowance has become a big question mark over the Tories’ commitment to a promise which has become totemic with many of their core voters.
“Labour punished poor pensioners, snatching away winter fuel payments due to poor means testing,” she said.
“We need better mechanisms, not proxies like pension credit or free school meals. So why are Labour, Reform, and Lib Dems pretending we’re cancelling the triple lock? They’re scared.”
She continued: “In the clip attached, I say ‘no’ to looking at the triple lock.
“But we do need to deliver better means testing. Big tech and supermarkets know more than the government about its citizens. It’s time to change the system for the better. Let’s do this for the next generation.”
On Friday morning, Nigel Huddleston, the Tory party’s co-chair, defended Ms Badenoch and said means testing was very different to scrapping it all together.
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Speaking to Matt Barbet on Sky News Breakfast, Mr Huddleston said: “What Kemi said yesterday in answer to the triple lock… the first word out of her mouth was ‘no’.
“What she talked about yesterday in an interview was about means testing, and this is something she has commented on before, in the context of, for example, winter fuel.
“And she said, look, millionaires probably shouldn’t get it. Millionaires, not millions of pensioners – millionaires.
“We probably do need to look at means testing at some of those levels, and I don’t think many viewers would disagree with that.”
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