Latest news with #megafunds
The Independent
7 days ago
- Business
- The Independent
What Rachel Reeves' pensions revamp means for your retirement pot - and will you really see £6,000 more?
Government proposals over changes to how pensions are run were released on Thursday, with headlines around £6,000 boosts to workers and £25bn megafunds painting a positive picture for the future. Chancellor Rachel Reeves said the 'reforms mean better returns for workers' and pointed out extra investment for businesses in the UK could push economic growth. But it's all rather abstract for workers - especially on the back of a recent study looking at whether pension contributions were subject to tax - who might simply want to know: what's happening to my pension now? What's happening and what may change? Currently, many pension providers are in operation across the UK, large and small. The plan is to combine many of them into 'megafunds', with your employer-defined contribution (DC) pensions - those are workplace pensions you automatically pay into from your salary, before tax - being pooled with others to create giant funds worth at least £25bn. Local government pension schemes will be consolidated too, from 86 authorities down to six groups. The plan is for this to happen over the next five years, with any funds which don't achieve that figure being given extra time if they can provide the pathway for how they'll get there. Industry body the Society of Pension Professionals has given its approval to the scheme, as have many of the UK's largest existing pensions companies, with deputy prime minister Angela Rayner saying the money in these pension pools will drive 'growth and opportunities in communities across the country for years to come'. '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', with voluntary agreements by those schemes to boost their allocation to UK-based investments, with a significant emphasis on private equity and 'productive' assets,' pensions expert Alice Guy told The Independent. 'The UK pension system is incredibly fragmented with thousands of small schemes, which adds complexity and costs for pension providers. 'Having fewer, bigger schemes should make it easier for regulators to keep an eye on performance and underlying fees,' Ms Guy added. 'Practically speaking, most of this will happen behind the scenes - your money is protected and ringfenced. Most pension schemes are broadly similar, so there won't be much obvious impact on pension savers.' Pooling pension money into megafunds is likely to mean that your pension provider may change or merge with others, but this could yet be years down the line. £6,000 each? Sort of So, this six grand benefit. The government report cited the example of an average pension pot, with its value under current conditions and then adding in changes through lowered fees and costs and an expected two per cent uplift from the benefits of new investment options. As a result of those changes, they estimate a £5,900 positive change to the average pension pot. Ms Guy explained: 'The estimated £5,900 saving is based on providers passing on cost savings to pension savers. An average 22-year-old earner is expected to save £2,500 on pension fees over their working life and enjoy a £3,300 investment boost due to better investment performance. Ministers hope that bigger funds will have more resources to invest in a wider range of assets, including private equity.' So, you're not exactly going to see an extra chunk of cash in your bank account, or indeed appear in your pension fund. But that's the expected benefit per person after the reforms. This is a many-year approach, of course, and actual pension value will depend not just on how much you earn and the fees you pay, but also on the market value of those investments at the time of your retirement. Reason for caution Tom Selby, director of public policy at AJ Bell, points out a few notes to be aware of, including no guarantee of any long-term benefit at all. Most of all, for some there will be the danger of chasing government policy plans over investor benefit. 'Many of the claims about the benefits of these reforms to pension savers and retirees need to be taken with a fistful of salt,' Mr Selby said. 'While there may be some efficiency benefits to consolidation, these are difficult to quantify with certainty and reducing competition in the market may stifle incentives to deliver innovation. 'In addition, private equity investing is notoriously high cost and high risk, meaning it is entirely possible people will end up worse off if those investments fail to perform over the long term. 'There is a clear danger that conflating government policy goals – namely driving higher levels of investment in the UK and ultimately economic growth – with those of savers and retirees means the latter will be risked in pursuit of the former. 'It is vital the needs of pension scheme members remain the priority, rather than the needs of a government focused primarily on its growth agenda and ultimately to bolster its chances of re-election.'
The Independent
29-05-2025
- Business
- The Independent
Millions could receive £6,000 in pension pots under ‘megafund' reform plans
The UK government plans to double the number of UK pension megafunds by 2030, potentially boosting millions of workers' retirement pots by £6,000. Reforms in the Pension Schemes Bill propose that multi-employer defined contribution pension schemes and local government pension scheme pools operate at megafund level, managing at least £25 billion in assets within the next five years. The Treasury hopes this will result in a £50 billion investment in infrastructure projects, boosting the economy and driving up higher returns for savers. Chancellor Rachel Reeves stated the reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses. Former pensions minister Sir Steve Webb described it as a 'truly a red letter day for pension schemes The schemes are expected to save £1 billion a year through economies of scale and improved investment strategies, the Treasury said.
Reuters
28-05-2025
- Business
- Reuters
Some UK pension funds told to merge into 'megafunds' by 2030
LONDON, May 29 (Reuters) - Some British pension schemes will be told to merge to become 'megafunds' with at least 25 billion pounds ($34 billion) of assets by 2030, the government said on Thursday, part of its wider drive to channel more investment into the UK economy. Planned reforms will require certain smaller pension schemes to merge, in a bid to emulate Australia and Canada's pension systems that feature fewer, larger funds that are better able to invest at scale. "We're making pensions work for Britain. These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses," finance minister Rachel Reeves said in a statement. The UK government has been pursuing a range of policies to try to boost domestic investment, including signing up 17 investment firms to a pledge to pump 50 billion pounds of additional cash into UK businesses and infrastructure. The latest changes, to be laid out in a forthcoming pensions scheme bill, will apply to multi-employer defined contribution schemes and local government pension schemes, the government added. Penalties will be applied to pension funds that don't meet the 25 billion pounds assets threshold by 2030, such as losing access to auto-enrollment contributions that would be diverted into larger schemes, a government official told Reuters. Schemes worth over 10 billion pounds that are unable to reach the minimum size by that time will be allowed to continue, as long as they demonstrate a clear plan to reach it by 2035, the government added. Local government pension schemes will also be given local investment targets, which the government said would help put 27.5 billion pounds into local projects. These schemes will also be told to combine assets split across more than 86 authorities into just six pools. ($1 = 0.7426 pounds)
BBC News
28-05-2025
- Business
- BBC News
Reeves outlines plan for £25bn pension 'megafunds'
The government has fleshed out its plans for reforming the UK pension industry, including the creation of £25bn "megafunds" which will be instructed to make a portion of their investments locally to help fuel economic chancellor said the overhaul, designed to follow the example of Australia and Canada's huge pension investment funds, would also boost people's pension pots. "These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses," Rachel Reeves of the UK's largest pension firms already approved the gist of these reforms in a voluntary agreement earlier this month. However, the government is also including a legislative back-stop, which will allow it to push through the new rules, if insufficient progress is made by the end of the government has indicated it does not expect to use the new powers. Nevertheless, that element may draw criticism, with some in the industry opposed to any government mandate over how and where investments are Alexander, a director at the Pensions and Lifetime Savings Association, said the changes would have "significant implications" for how pension schemes she added: "Increased consolidation has the potential to improve retirement outcomes through improved governance, wider investment diversification and improved bargaining power." Miles Celic chief executive of The City UK, representing the financial services industry, backed the chancellor's assertion that the move could "help drive economic growth". A former Liberal Democrat pensions minister, Sir Steve Webb, who is now a partner at consultants LCP (Lane Clark & Peacock), described the news as "truly a red letter day for pension schemes, their members and the companies who stand behind them"."The Government has clearly been bold in this area and this opens up the potential for this surplus money to be used more productively to benefit scheme members, firms and the wider economy," he added. One of Labour's first moves after taking office last year was the announcement of a pension review. In November the chancellor floated her "megafunds" plan, which covers retirement savings for the majority of UK workers in two there are the 86 different local authority pension schemes, which provide for more than six million people in their retirement, the majority low-paid women. The £392bn in these defined benefit schemes will be merged in just six asset pools by March next a defined benefit scheme a worker pays into their pension and is paid a pre-determined amount based on their salary and length of investment targets will be agreed for local authority pension schemes for the first time, the Treasury defined contribution schemes currently worth £800bn, and covering millions of other private and public sector workers across the country, will also be defined contribution schemes workers are not guaranteed a specific amount. Instead their pension depends on the performance of the fund in the years before 2030 the government says there should be more than 20 pension funds worth more than £25bn, in contrast to the current part of the voluntary agreement, known as the Mansion House accord, agreed earlier in May, the 17 firms involved committed to investing 10% of their assets in things other than publicly traded shares, so that more money would flow into home-building, infrastructure projects and start-up businesses in fast-growing addition, 5% of investments will be earmarked to go into UK reforms will form part of the Pension Schemes Bill, about to go before Parliament. The new approach would mean over £50bn additional investment in UK infrastructure, new homes and businesses, the Treasury Thursday the government is publishing the final report from its Pensions Investment Review. It said the review found the reforms would drive higher returns for pension savers through cutting waste, economies of scale and improved investment a result workers on average earnings could see a £6,000 boost to their defined contribution pension pot, the Treasury said.
The Sun
28-05-2025
- Business
- The Sun
Rachel Reeves' pension ‘megafund' reforms to bag retirees £6,000 extra each
MILLIONS of people are set to receive a £6,000 boost to their pension pots, new figures reveal. Chancellor Rachel Reeves previously announced plans to move billions of pounds of pension savings into larger "megafunds". The scheme is aimed at boosting savers' retirement pots as well as investment in the UK. Now Government data shows the move should boost the average earner's pension pot by £6,000 by the time they retire. This is based on the average earner who begins saving at 22 and continues to do so until they reach state pension age. Reeves said the pension reforms will "mean better returns for workers and billions more invested in clean energy and high-growth businesses". The plans are some of the biggest pension reforms in decades and the Treasury has described them as "radical". They will be introduced through a pensions schemes bill next year. As part of the plans, the Government will consolidate - or in other words, pool together - defined contribution schemes. Defined contribution pension schemes are a type of private pension you contribute to on a regular basis. There are currently about 60 different multi-employer schemes, which invest pension savers' money into funds. But the Government says that moving pension savings into bigger "megafunds" will mean they can be invested in assets that have higher growth potential. In turn that could mean pension savers have more in their pots by the time they retire. Australia and Canada have similar schemes that the UK is hoping to emulate. It's estimated that defined contribution pension schemes will manage £800billion worth of assets by 2030. The Government says the move could generate about £80billion worth of investment in new businesses and critical infrastructure. Separately, the Government is also planning to make changes to hundreds of billions of pounds worth of assets which are currently split across 86 local government pension scheme authorities. At the moment local government officials and councillors manage each fund. But under the plans, the Local Government Pension Scheme in England and Wales will manage assets worth around £500 billion by 2030. This means the pension assets will be pooled into a handful of funds run by professional fund managers. The Government says this will allow them to invest more in infrastructure, supporting economic growth and local investment. Jon Greer, head of retirement policy at wealth manager Quilter, previously said the consolidation could "open new doors" for UK pensions if managed carefully. But he said its success would depend "heavily" on the availability of new infrastructure projects to invest in. "Large funds need substantial, reliable projects to generate returns, but the market may struggle to offer enough of these opportunities, especially in the infrastructure sector," he said. "If too much money chases too few viable investments, the effectiveness of this consolidation could be diluted, with funds potentially forced into riskier or less impactful projects." Tom Selby, director of public policy at AJ Bell, said there is a danger as "risks are all taken with members' money". "There needs to be some caution in this push to use other people's money to drive economic growth. It needs to be made very clear to members what is happening with their money," he said. How do I consolidate my pension? IF you have several workplace pensions that you're no longer paying into, you might be better off consolidating them into a single pot. There are several advantages to this. The first is that by having your savings all in one place, you'll only pay one set of fees. You can also choose which pension provider you want to transfer the different savings to, so you can pick the best one for you. It also makes it easier to keep track of your money. You might want to move all your money to whichever of your existing pots has the best fees, or you could move it all to your current employer pension (if you have one). Alternatively, you may wish to move money to a private pension or use a consolidator service, such as Pension Bee, Aviva, or Wealthify. Make sure you compare and contrast your options carefully so that you're picking the best home for your savings. You'll need to look at fees but also might want to consider the investment options available. If any of your pots are over £30,000 you'll need to get independent financial advice, but even if you have lots of smaller pots you should consider speaking to an independent financial advisor (IFA). You can use Unbiased or VouchedFor to find a recommended advisor near you. Also ask whether you'll be charged a fee to exit your existing provider and to join your new provider, plus whether the age at which you can access your pension is different - for most people this is currently 55, but is set to rise to 57. You also need to ensure the pension you're leaving doesn't come with valuable added perks, or you could lose out. Stay alert for pension transfer scams as fraudsters often target people transferring their pension with promises of investments that are too good to be true.
