Millions of workers could get £6,000 pension boost under huge rule change

Millions of workers could get £6,000 pension boost under huge rule change Newspoint | 30/05/2025 00:39:21

Millions of workers could see a £6,000 boost to their retirement pots as part of new Government plans. It involves doubling the number of UK pension megafunds by 2030.

This is where smaller local authority and private workplace schemes are consolidated together, in the hope that larger funds will generate greater returns. Chancellor first revealed her megafunds plan last November.

But now, new reforms in the Pension Schemes Bill have been detailed, including proposals for at least £25billion in assets to operate at megafund level within the next five years.

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This would see 86 different local authority pension schemes, which provide for more than six million people in their retirement, merged in just six asset pools by March next year.

Defined contribution schemes - the most common type of workplace pension scheme and currently worth £800billion - will also be consolidated.

Defined contribution schemes sees savers pay into a pension scheme with regular contributions, and the size of your pot by retirement depends on how much you've saved, and the growth of your investment.

The Treasury said its megafund plans could result in an investment of £50billion in infrastructure projects, which it hopes will boost the economy and drive higher returns for savers. There are similar schemes that run in and Canada.

Chancellor Rachel Reeves said: “We’re making work for Britain. These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses – the plan for change in action.”

Deputy Prime Minister said: “The untapped potential of the £392 billion local government pension scheme is enormous.

“Through these reforms we will make sure it drives growth and opportunities in communities across the country for years to come – delivering on our plan for change.”

Pensions Minister, Torsten Bell, added: “Our economic strategy is about delivering real change, not tinkering around the edges.

"When it comes to pensions, size matters, so our plans will double the number of £25bn plus megafunds. These reforms will mean bigger, better pension schemes, delivering a better retirement for millions and high investment in Britain.”

Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at consultants LCP (Lane Clark & Peacock), described it as a “truly a red letter day for pension schemes, their members and the companies who stand behind them”.

He said: “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.”

Zoe Alexander, a director at the Pensions and Lifetime Savings Association, said the changes would have "significant implications" for how pension schemes operated.

But she added: "Increased consolidation has the potential to improve retirement outcomes through improved governance, wider investment diversification and improved bargaining power."