Government sets £25bn minimum for pensions ‘megafunds’

The Government has set out plans that will require all workplace pension schemes to reach a minimum size of £25bn by 2030 to boost investment in UK assets. 

Any schemes that fall short will have to merge, with ministers claiming bigger funds could add £6,000 to the average pension at retirement. 

The £392bn Local Government Pension Scheme, now run by 86 local authorities, will be cut down to six pools across the UK.

Under the Pension Schemes Bill, the Government will also get a ‘reserve power’ to set mandatory investment targets in UK assets if schemes do not shift enough money voluntarily. 

This could force pension funds to put more members’ money into UK businesses and infrastructure.

Tom Selby, director of public policy at AJ Bell, said: “The government’s workplace pensions agenda has been clear for a long time now – cajole pension schemes, by hook or by crook, to invest a greater share of millions of Brits’ hard-earned retirement pots in UK plc. 

“These so-called ‘Mansion House’ reforms were kick-started by the previous Conservative government and are being accelerated under Sir Keir Starmer’s Labour administration, with ministers placing workplace pensions front-and-centre of an increasingly desperate search for economic growth.

“The Pension Schemes Bill hopes to achieve this revolution through a combination of consolidation of workplace schemes in the private sector and across local authority schemes into ‘megafunds’ and voluntary agreements by those schemes to boost their allocation to UK-based investments, with a significant emphasis on private equity and ‘productive’ assets.”