Chancellor Rachel Reeves has announced plans to overhaul the UK’s pension system by merging 86 local council pension schemes into larger “megafunds”, inspired by models in Canada and Australia.
The government believes combining these Local Government Pension Scheme (LGPS) funds—currently worth £354bn and serving 6.5 million members—would reduce management fees and boost investment in UK infrastructure. Most LGPS members are low-paid women.
These schemes are defined benefit pensions, meaning savers receive a fixed amount based on their salary, regardless of fund performance. So, despite consolidation, individual payouts should remain unaffected.
The Canadian model, like the Ontario Teachers’ Pension Plan and the Canada Pension Plan, invests heavily in private markets and infrastructure rather than traditional equities. UK funds typically hold more listed equities and bonds, which some believe limits returns.
Supporters say larger UK funds would have more financial power and could access more diverse investments. For example, Greater Manchester’s £30bn fund contrasts with several much smaller ones, some below £1bn. Managing each fund separately is expensive—the LGPS saw a £28m increase in costs last year alone.
However, critics caution that bigger is not always better. Concerns include the risk of chasing political objectives with members’ savings, rather than prioritising returns. Tom Selby of AJ Bell warned that aligning pension strategy with national investment goals could compromise individual outcomes.
Others, like Quilter’s Jon Greer, question whether there are enough viable UK infrastructure projects to absorb such large investments.
Past chancellors, including Jeremy Hunt and George Osborne, have proposed similar consolidation efforts. Now Reeves is pushing forward, but questions remain about implementation and whether the risks justify the potential rewards.
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