Rachel Reeves has announced plans to boost investment through the creation of pension ‘megafunds’ similar to those seen in Australia and Canada.

In her first Mansion House speech last night, the chancellor set out plans to require the 86 authorities that administer the Local Government Pension scheme to consolidate their assets into just eight pools.

Source: HM Treasury / Flickr

Rachel Reeves delivering her first Mansion House address last night

The annual address is often used by the chancellor to set out the government’s plans for the economy and the financial sector, and Reeves’ was focused on how the UK could better leverage domestic pension capital.

According to the chancellor, there will be £800bn of assets in workplace defined contribution scheme and £500bn in the local government pension scheme by the end of the decade.

She explained that “for too long” the UK’s large pension market had “not been used to support the development of British start-ups, scale-ups or to meet our infrastructure needs”.

“I have long been of the view that this hurts our economy because our highest-potential businesses cannot expand and savers are not seeing the returns on their investment which they deserve,” she said.

Reeves said she had been pleased by the work of her predecessor, Jeremy Hunt, to unlock pension investment but that the new government needed to “go further”.

Emma Reynolds, minister for pensions in the Department for Work and Pensions, has spent the last few months conducting a review into pensions investment, which was commissioned shortly after Labour came into power.

According to the government, Australian pension schemes invest around three times more in infrastructure investment compared to defined contribution schemes in the UK.

Reeves attributed this in part to the much larger size of Australian compared with the UK’s fragmented market.

“More often than not, it is Canadian teachers and Australian professors reaping the rewards of investing in British productive assets through their pensions schemes rather than British savers,” said Reeves. “That’s not good enough and we need to change that.”

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The interim report of Reynolds’ review set out plans to create Canadian- and Australian-style “megafunds”, which Reeves said would be legislated for in the Pension Scheme Bill next year.

“Through consolidation of the DC [defined contribution] market and Local Government Pension Schemes into megafunds previous domestic and international experience suggests that we could unlock around £80bn for investment in private equity, including exciting growth businesses and in vital infrastructure projects including transport, energy and housing projects here in the UK,” said Reeves.