Pension megafund reforms to unlock billions for property and growth sectors

New government reforms will see all multi-employer Defined Contribution schemes and Local Government Pension Scheme pools operating as £25bn+ “megafunds” by 2030, under measures announced in the upcoming Pension Schemes Bill. The shift aims to unleash billions for UK infrastructure, housing, and scale-up businesses—turbocharging domestic investment. The move follows a sharp drop in UK pension fund investment at home, falling from over 50% of DC assets in 2012 to around 20% today. By consolidating schemes and enabling greater investment in private markets, the government hopes to reverse the trend. Chancellor Rachel Reeves said: “We’re making pensions work for Britain. These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses – the Plan for Change in action.” Deputy prime minister Angela Rayner added: “The untapped potential of the £392 billion Local Government Pension Scheme is enormous. Through these reforms we will make sure it drives growth and opportunities in communities across the country for years to come – delivering on our Plan for Change.” Evidence from Australia and Canada suggests that £25bn+ funds can access high-performing private markets and back long-term national projects. Treasury figures estimate savings of £1bn annually by 2030 through economies of scale — equivalent to a £6,000 boost in retirement pots for average earners. The reforms also respond to increasing pressure to deploy UK capital more productively. More than 50 high-growth businesses have signed a joint letter to the Chancellor describing the reforms as a “significant milestone in ensuring British institutions back British businesses at the scale required to generate growth, employment and wealth.” Local investment will be a core pillar of the plan. For the first time, LGPS authorities will agree investment targets in partnership with regional mayors and councils, securing £27.5bn for local priorities. Pensions Minister Torsten Bell said: “Our economic strategy is about delivering real change, not tinkering around the edges. When it comes to pensions, size matters, so our plans will double the number of £25bn plus megafunds. These reforms will mean bigger, better pension schemes, delivering a better retirement for millions and high investment in Britain.” Irene Graham OBE, chief executive of the ScaleUp Institute, welcomed the government’s final report, and said: “This represents a significant milestone in ensuring British institutions back British business, at the scale required, to generate growth, employment and wealth.” To ensure long-term success, the government will also introduce backstop powers to enforce LGPS pooling and asset allocation targets where necessary. Schemes unable to meet the £25bn threshold by 2030 must show a clear plan to do so by 2035. Ion Fletcher, director, British Property Federation, added: “DC pension schemes are the future of pension money in the UK, but their potential to transform our towns and cities has been stymied by fragmentation and lack of scale. The Government’s focus on supporting ‘megafunds’ will create pools of capital with the firepower and expertise needed to invest in major infrastructure projects benefitting the UK’s local and national economy, as well as individual pension pots. “We have seen firsthand the impact of similar approaches in Australia and Canada, with huge investment into the commercial and living sectors and support any initiatives that enables capital to enhance our buildings, towns and cities.” Image: © Adobe Stock