Superannuation giant funds could realize $80 billion in investments as the Prime Minister takes radical steps to boost economic growth.

The changes could enable approximately $80 billion in investment in future infrastructure projects and businesses. Changes to the local government pension system will secure funding for local public services over the long term and free up more than $20 billion for investment in local communities.

The pension megafund has been created as part of the biggest pension reform in decades and will attract billions of pounds of investment in exciting new businesses, infrastructure and regional projects.

After a first Budget that laid the foundations to deliver stability, Rachel Reeves used her first Mansion House speech as Prime Minister to address the fragmented pensions environment, deliver investment and address the only way to help people live better lives. We will announce bold steps to stimulate economic growth. .

The radical reforms, to be introduced through new pension schemes legislation next year, will create a large fund by consolidating defined contribution schemes and consolidating the assets of 86 local government pension scheme authorities.

These large funds mirror the setup in Australia and Canada. Pension funds leverage their size to invest in assets with higher growth potential. This will provide approximately $80 billion in investment in exciting new businesses and critical infrastructure while expanding defined contribution savings plans. .

Treasury Secretary Rachel Reeves said:

Last month's budget laid the foundations to restore economic stability and put public services on a firmer footing. We are now moving towards growth.

This begins with the biggest reform to the pensions market in decades. This will enable us to invest tens of billions of pounds in business and infrastructure, boost retirement savings and boost economic growth, making life better for every part of the UK.

Deputy Prime Minister Angela Rayner said:

We've all seen the fantastic work our frontline workers do every day, and now it's time for their pensions to start working hard by driving investment in their communities.

This is about harnessing the untapped potential of millions of people's pensions and using them as a force for good to boost our economy.

Pensions Minister Emma Reynolds said:

Harnessing the power of this multi-billion pound industry is a win-win that will benefit future pensioners and the wider economy.

These reforms will allow us to invest $80 billion in exciting new businesses and critical infrastructure.

The UK pension system is one of the world's largest, with the local government pension scheme and defined contribution market expected to manage $1.3 trillion in assets by the end of the decade. However, our pensions landscape is fragmented and lacks the scale needed to invest in exciting new businesses or expensive projects such as infrastructure.

Pension funds begin to return much higher levels of productive investments once they reach $25 billion to $50 billion in assets under management, according to government analysis published today in Mansion House's Pension Investment Review interim report. At this point, they are better positioned to invest in a wider range of assets, such as exciting new businesses and expensive infrastructure projects. Even large pension funds with assets exceeding $50 billion can take advantage of additional benefits, including the ability to invest directly at low cost in large-scale projects such as infrastructure.

This is supported by evidence from Canada and Australia. The Canadian pension system invests about four times more in infrastructure, while the Australian pension system invests about three times more in infrastructure and 10 times more in corporate-like private equity than the UK's defined contribution system. Benchmarking against national and international cases shows that the integration of local government pension schemes and defined contribution schemes into megafunds would enable investment of around $80 billion in productive investments such as infrastructure and fast-growing companies.

The government is therefore consulting on proposals to leverage pension fund size and improve governance.

local government pension system

Local government pension systems in England and Wales will manage around $500 billion worth of assets by 2030. These assets are currently spread across 86 different administrations, managing between $300 million and $30 billion in assets, with each fund managed by local government officials and legislators.

Consolidating assets into a few megafunds run by professional fund managers will allow more to be invested in assets such as infrastructure, supporting economic growth and regional investment on behalf of the country's 6.7 million civil servants, most of whom are low-paid women. management.

These large funds must meet strict criteria to be available to depositors, including being approved by the Financial Conduct Authority. The governance of the local government pension system will also be overhauled to deliver better value for money in investment decisions and, independent research suggests, free up funding to support local public services over the long term.

The changes will boost local economies, as each administration will be required to target pooled investments in the local economy and work with local and mayoral union authorities to identify the best opportunities to support local growth. If each administration sets a 5% target, this would secure $20 billion in investment in local communities.

A new independent review process will be established to ensure that each of the 86 administrative agencies is fit for purpose.

defined contribution plan

Defined contribution pension plans are expected to manage $800 billion worth of assets by the end of 2010.

There are currently around 60 different multi-employer schemes, each of which saves you money in one or more funds. The Government will consult on setting minimum size requirements to ensure these funds can reach their investment potential.

The government will also consult on measures to promote consolidation into larger funds, including legislation to make it easier for fund managers to move depositors from underperforming schemes to those offering higher returns.

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