Chancellor to shake-up council pension schemes

(Sharecast News) - Rachel Reeves is to use her first Mansion House speech as chancellor to unveil a slew of reforms to UK pension rules. In particular, the government wants to combine 86 council pension schemes into just eight so-called megafunds, mirroring similar local government pension schemes in Canada and Australia.

The UK's vast but fragmented Local Government Pension Scheme is expected to manage assets worth around £500bn by 2030. These are currently spilt across the 86 authorities, which manage assets ranging from £300m to £30bn.

However, due to their size, megafunds have more investment opportunities open to them and are able to invest in assets with higher growth potential, such as fast-growing companies and infrastructure.

Pensions minister Emma Reynolds said: "Harnessing the power of this multi-billion pound industry is a win-win, benefiting future pensioners and our wider economy.

"These reforms could unlock £80bn of investment into exciting new businesses and critical infrastructure."

The reforms, to be introduced in the Pension Schemes Bill next year, would also end the role of local councils in administering the money.

Reeves told the Financial Times ahead of her speech on Thursday evening: "Everything will go through the pools rather than through local authorities. This will deliver the megafunds that have eluded the UK for too long."

Around 6.7m public servants pay into the Local Government Pension Scheme.

Tom Selby, director of public policy at AJ Bell, said: "My overarching concern is that the needs of the saver, whose money is ultimately going to be risked, will be forgotten about.

"Conflating a government goal of driving investment in the UK and people's retirement outcomes brings a danger, because the risks are all taken with members' money. It if goes well, everyone can celebrate. But it's clearly possible it will go the other way, so there needs to be some caution."

CBI chief economist Louise Hellem said the chancellor was right to focus on boosting investment and increasing saver returns, as well as modernising the pension system.

"The UK has the second largest pool of pension assets in the world, so finding ways to reorient them towards long-term investment in businesses and infrastructure could drive economic prosperity," she added.