Rachel Reeves is set to announce major reforms to merge local Government pension schemes into “megafunds” through a new Pension Schemes Bill next year but experts claim the move will be a “grave mistake”.
The Chancellor will unveil the plans in her inaugural Mansion House speech to city leaders today, marking what the Government calls the “biggest pension reforms in decades”.
This overhaul aims to consolidate assets from 86 separate local Government pension schemes into larger pooled funds managed by professional investors.
Similar models have been used in Australia and Canada, where public sector pension schemes have been consolidated into larger funds managed in-house.
The reforms are designed to enable pension funds to invest in a wider range of assets while reducing fees paid to financial advisers.
The scale of the reform is significant, encompassing 86 local Government pension schemes with 6.5 million members and £360billion in assets.
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Reeves is planning to introduce the “biggest reforms” to the pension system in decades
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The Treasury has not yet specified exactly how many megafunds will be created, saying only that they will soon consult on plans to improve governance and leverage fund size.
This initiative builds on previous attempts at reform, including David Cameron’s 2015 push to create eight larger pools, which resulted in only 39 per cent of assets being consolidated.
Former Chancellor Jeremy Hunt had suggested by 2040 all local Government pension assets would be in vehicles worth £200billion or more, hinting at two or three major pools.
The Government claims a five per cent target for local investment could secure £20billion for communities across the country.
Each administering authority will be required to set targets for investment in their local economies, subject to independent reviews.
“We’re going for growth,” Reeves said in a statement ahead of her speech.
The reforms aim to enable investment in infrastructure, startups and private equity on a larger scale.
However, some financial experts have urged caution in implementing any drastic changes to the status quo.
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Felicia Hjertman, the founder and CEO of investment platform TILLIT, warned that mandating pension investments through a National Wealth Fund would be “a grave mistake”.
The changes will also include plans to combine smaller defined contribution schemes nationwide.
Deputy Prime Minister Angela Rayner emphasised the benefits for public sector workers.
She shared: “We’ve all seen the fantastic work carried out day in, day out, by our frontline workers and it’s about time their pension started working just as hard by driving investment in their communities.”