Will Britain’s pensions shake-up go further?

Can the Government do more to encourage domestic investment without imposing mandates on fund managers?

As expected, the Chancellor’s Mansion House speech confirmed widely anticipated plans to consolidate the UK’s constellation of defined contribution (DC) and local authority pension schemes into a cluster of ‘megafunds’.

The merger of schemes holding a collective £1.2tn is intended to drive economies of scale, higher returns and more investment in British companies and equities. The Local Government Pension Scheme (LGPS), the main focus of the reforms, is currently administered by 86 local pension funds in England and Wales. If combined it would rank in the world’s top 10 largest pension funds.

The Government argues that the pooling of disparate pension assets into schemes worth at least £25bn will unlock up to £80bn of capital for domestic investment. Just 4.4% of UK pensions are currently held in domestic equities, against a global average of more than 10%. Previous governments have pushed for consolidation but the most recent figures show that by 2022 only 39% of funds’ assets had been transferred. The Treasury wants all funds to delegate the management of their assets to their chosen pool by March 2026.