The UK government has shared the final Pension Investment Review report, revealing that it will take a reserve power in the Pension Schemes Bill to set binding asset allocation targets, as it moves ahead with plans to double the number of UK pension megafunds by 2030.

The report also confirmed the March 2026 deadline for Local Government Pension Scheme (LGPS) asset pooling, with a backstop power to be taken in the bill to protect the interests of LGPS members and local taxpayers.

The review confirmed the government's plans to introduce a package of measures in the Pension Schemes Bill, which are expected to drive more investment directly into the UK economy for new homes and promising scale-up businesses, and boost saver outcomes.

In particular, the reforms will require all multi-employer defined contribution (DC) pension schemes and Local Government Pension Scheme pools to operate at megafund level, managing at least £25bn in assets by 2030.

This was based on evidence from Australia and Canada, which suggested that this size allows pension funds to invest in big infrastructure projects and private businesses, boosting the economy while potentially driving higher returns for savers.

Indeed, the government said that the reforms will drive higher returns for savers, partly by cutting waste in the system, estimating that, by 2030 these schemes could be saving £1bn a year through economies of scale and improved investment strategies.

As a result, an average earner who saves over their career could see a £6,000 boost to their DC pension pot at retirement through the creation of megafunds.

However, the government reassured the industry that schemes worth over £10bn that are unable to reach the minimum size requirement by the end of the decade will be allowed to continue operating, as long as they can demonstrate a clear plan to reach £25bn by 2035.

"After reviewing the evidence and responses to the consultation, we have decided to have a transition pathway which will allow additional time for schemes to reach scale," the government stated.

The government is looking to set out the specific requirements for the transition pathway in secondary legislation following further consultation with industry and regulators to ensure it gets the details and mechanics right.

The government will also legislate to require providers or master trusts at scale to demonstrate they have, or are building, an investment capability commensurate with scale.

For schemes who cannot reach the scale requirements (by 2030 or 2035) or access the transition pathway, they will no longer be able to participate in the auto-enrolment market and will be expected to consider wind up or consolidation.

More broadly, the government confirmed that DC schemes will be given more freedom through legislation to move savers into better-performing funds, introducing a contractual override mechanism for the bulk transfer of assets, where it is in savers’ interests.

Both the contractual override measures and the Value-for-Money Framework are expected to be operational from 2028, after which the government will establish a Ministerial-led review to examine the available evidence and explore the reasons why any default arrangements remain outside the expected main scale default arrangements.

The government will also provide for a legislative underpin to be able to tackle any remaining fragmentation as needed.

The reforms build on the recent Mansion House Accord, which saw seventeen of the largest UK workplace pension providers express their intent to invest at least 10 per cent of their DC default funds in private markets by 2030, with 5 per cent of the total allocated to the UK.

However, the government has since confirmed that, to provide additional certainty that individual schemes will not lose business by investing in private markets, which offer the potential for higher returns but are expensive to invest in upfront, the government will take a reserve power in the Pension Schemes Bill to set binding asset allocation targets.

This has already prompted concern within the industry, as LCP warned that while many of these reforms could help to drive improved member outcomes through lower costs or accessing a wider range of investment options, the threat of government intervention to ‘mandate’ how pension schemes invest members’ money is "unprecedented".

"Trustees draw on professional expertise to draw up an investment strategy which will best meet the needs of members, and this should never be over-ridden by the political priorities of the government of the day," LCP partner and head of DC pensions, Laura Myers, said.

The government will also introduce a backstop power in the Pension Schemes Bill to protect the interests of LGPS members and local taxpayers where necessary by directing an Administering Authority to participate in a specific investment pool.

In addition to this, local investment targets will be agreed with LGPS authorities for the first time, which is set to secure £27.5bn for local priorities.

Other reforms are not being taken forward, however, as the government confirmed that it has decided not to further explore measures proposed to affect the role of employers or advisers in the DC workplace market, at this time.

It also decided against introducing reforms regarding differential pricing.

Commenting on the plans, Chancellor of the Exchequer, Rachel Reeves, said: “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 – the Plan for Change in action.”

Adding to this, Deputy Prime Minister, Angela Rayner, said: “The untapped potential of the £392bn LGPS 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.”

The changes were announced alongside the news that London CIV has become the first LGPS pool to announce its intention to work with the British Business Bank on the launch of the British Growth Partnership (BGP), joining Aegon UK and NatWest Cushon, who announced their intention to collaborate on the BGP last year.

This article originally appeared on our sister title, PensionsAge.

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