Chancellor Rachel Reeves is planning what she calls the “biggest pension reform in decades” in an attempt to boost economic growth.

The government wants to merge the UK’s 86 council pension schemes into a handful of “pension megafunds”.

It is hoped the changes will lead to billions of pounds being invested in the UK in areas such as energy infrastructure, tech start-ups and public services.

Reeves told the BBC that UK public sector pension funds in their current form were not big enough to generate good returns for British savers, but some argue the changes are not without risk.

What will it mean for my pension?
Workers in local government schemes have a pension based on salary and service length – known as a defined benefit pension – and they will not see any change to their payments as a result of the plans.

Most private sector workers are in schemes where they pay into a savings pot each month, and their eventual pension depends upon the size of this when they retire.

The government is considering setting a minimum size requirement for these defined contributions schemes. This could affect the rate at which your pension savings grow.

Reeves told the BBC ahead of her first speech as chancellor at the annual Mansion House gathering of investors in London that she wants the UK’s pension schemes to be more like Canada and Australia.

In those countries, pensions of local government workers, such as teachers and civil servants, are pooled into a handful of funds which are able to make big investments around the world.

“They probably have the best pension funds anywhere in the world,” Reeves said.

The pension reforms are part of Reeves’ plan to boost growth and come after many businesses have criticised the rise in employer National Insurance contributions in the Budget.

She told the BBC that she is “not immune to those criticisms, but it was necessary to increase taxes” to get the state finances in shape and “properly fund” public services.

The government plans to merge the 86 council pension funds – which include £354bn in investments and are run by local government officials – into “megafunds” run by fund managers.

The Prime Minister’s spokesperson has acknowledged that new pension “mega funds” will not be obliged to invest in UK businesses or infrastructure.

“This isn’t looking at mandating of investment, this is about bringing forward the reforms necessary to create scale in our pension funds.”

The government also wants to set a minimum size limit on defined contribution schemes in the private sector, which manage around £800bn of investments, to encourage the consolidation of the around 60 different multi-employer schemes.

The government says its changes could “unlock” £80bn worth of investment into the UK.

“Our pension funds in Britain are too small to be making the investments that get a good return for people saving for retirement and to help our economy to grow,” Reeves said.

She added it made “no sense at all” that Canadian teachers and Australian professors were more likely to be invested in many long-term UK assets than savers in Britain.

Read More