Forcing the UK’s sprawling local government pension schemes (LGPS) to merge into a single “sovereign wealth fund” could unlock £40bn worth of investment for British infrastructure projects, a top pension manager has said.
In a statement yesterday, the Pension Insurance Corporation (PIC), which manages some £47bn in assets, said that pushing the UK’s fragmented local government pension schemes to combine in a single fund could deliver on Rachel Reeves’s plans to funnel a wave of retirement cash into the economy.
The call comes after Reeves tabled plans on Saturday to force consolidation of the sprawling local government pensions sector in a bid to unlock investment into the economy. Currently the LGPS is split across 87 different funds and spends £2bn per year on fees. The government said “pooling this money would enable the funds to invest in a wider range of UK assets”.
Since taking power earlier this month, Reeves and the Prime Minister, Keir Starmer, have said repeatedly they will lean on the pension system to finance infrastructure projects and a building drive around the country.
However, investment from pension funds has typically been hamstrung by the fragmented nature of funds and a regulatory requirement from consolidators like PIC to hold hefty capital buffers on their books.
In a statement today, the PIC urged the government to lean into plans to create a single consolidated fund for the country’s local government schemes to unlock investment for the economy.
“A single LGPS with a sophisticated, long-term investment strategy might put up to £40bn into vital infrastructure,” said Tracy Blackwell, chief executive of the PIC. “That could make a big difference to the UK’s economic prospects.”
Consolidating LGPS schemes into a single fund would give Britain “a real sovereign wealth fund” that could be “run and managed to the same professional standards as world-leading schemes like Canada’s,” Blackwell added.
The comments point to the huge consolidated pension superfunds in Canada, which have been touted as an example for Britain to follow due to the wide range of assets they invest in.
English council pensions have been seen as a key example of the fragmentation of the pension system in the UK. Cumulatively, the funds manage around £400bn of assets but the money is overseen by dozens of managers and local politicians, leading to lofty costs for savers and minimal investment in productive assets like venture capital, life sciences and infrastructure.
Under Reeves’s plans revealed this weekend, the government said it would consider mandating pooling if insufficient progress has been made by March 2025.
Top City firms have rowed in behind the plans as a means for boosting domestic investment. António Simões, chief executive of Legal & General, said the FTSE 100 insurer “welcome[d] the ambition set out by the government”.
“Driving pensions capital into areas such as science, technology and infrastructure can help support better returns for millions of retirement savers, as well as stimulate much needed long-term growth for the economy,” Simões said in a statement.