‘Pension megafunds’- Experts respond

Following reports of Chancellor Rachel Reeves’ plans to reform pension schemes to create ‘pension megafunds’ in order to boost economic growth through investing in infrastructure, experts respond

Lily Megson, Policy Director at My Pension Expert, said, “The Chancellor’s ambition to create ‘pension mega funds’ to fuel UK growth is well-intentioned, but savers need transparency and involvement in decisions that impact their retirement funds. Committing to the “biggest pension reforms in decades” is not a positive boast if consumers – those people whose hard-earned pension savings is at stake – are not properly informed and engaged with, helping them understand both the potential returns and risks.

“Using pension funds to simultaneously boost investment into UK industries, trigger economic growth and improve the performance of those funds is, of course, all positive. But it cannot come at the expense of financial security for retirement planners. What’s more, truly meaningful, radical pension reform must address a much broader range of issues that blight the country’s pensions market – such as limited pension engagement, the gender gap, lack of financial literacy, and limited access to guidance and advice.

“To properly support UK savers, we need a balanced approach – one that doesn’t sacrifice long-term financial security in the pursuit of UK economic goals. Savers need confidence that their retirement is the priority, not just a means to balance the books.”
 
Ashish Patel, a Managing Director in Houlihan Lokey’s Capital Markets Group, said:

“As the government advances its plans to consolidate local authority pension funds into ‘megafunds’ by 2030, this approach has the potential to unlock significant investment in high-growth UK businesses, infrastructure, and critical sectors. By consolidating and focusing disparate pension pots, investors would gain access to high-calibre growth opportunities that are often out of reach for smaller individual funds, but which could be effectively realised under a single, unified framework. Meanwhile, UK companies, particularly those in fast-developing industries, would benefit from patient domestic capital.

Given the recent announcements suggesting a renewed focus on a cohesive UK industrial strategy, it’s clear that the high-tech industries of the future—life sciences, advanced manufacturing, digital technologies, and others—are precisely the kinds of fertile, innovative fields that would be best placed to drive growth and deliver attractive returns for UK pension investors.”
 
Garry White, Chief Investment Commentator at Charles Stanley: “It appears that the government is wishing to encourage more private equity and infrastructure by creating very large public sector investment pools. These in turn by investing a small percentage in infrastructure or private equity in the UK could deliver a substantial boost to investment in these areas. Trustees of such funds could be persuaded to allow a bigger investment in UK shares and new unquoted investments whilst still keeping the percentage sufficiently low to meet requirements on risk and diversification.

“For the policy to succeed there needs to be an accessible range of suitable UK investment opportunities in infrastructure and business activity. The public sector pension funds would need to employ managers or advisers to set up a good system to identify the projects, reach contract terms with the entrepreneurs and then manage the investments through their life cycle. It is true the overall large collective Council asset base could take on a bit more illiquid and riskier investment in search of higher returns. It is also true that under existing Trustee law the Trustees and the Councils that appoint them need to satisfy themselves that there is likely to be sufficient extra return for the extra risk, and to ensure there is enough cash and liquid assets in the Fund to meet outgoings over a reasonable time period.”