Industry experts have broadly welcomed the Chancellor’s plans to create defined contribution (DC) and Local Government Pension Scheme (LGPS) ‘megafunds’ but warned that the “devil is the detail” over implementation and timescales.

Association of Consulting Actuaries chair, Stewart Hastie, said it “applauds the bold ambition” on LGPS and DC but stressed the “devil is in the detail” on how to implement the ambition and over what timescales.

He cautioned that the Australian and Canadian models are not panaceas and were not achieved overnight, suggesting it will be “key” to look at where the government draws the line on minimum £bns for DC funds, and how it might deal with identifying and consolidating “underperforming” funds.

However, Royal London director of policy, Jamie Jenkins, suggested that while scale itself does not deliver better retirement outcomes for savers, there was evidence from Australia and Canada there was a point of critical mass whereby it was easier to invest in longer-term, illiquid assets.

“This could give rise to greater returns, but also affords more capital for investment in vital infrastructure and growth areas of the economy,” he continued.

“It is encouraging to see the level of detail in the consultation to fully unearth how scale operates at present, and whether this is achieved within the scheme or investment layer of the various pension propositions in the market.”

This was echoed by Broadstone head of market engagement, Simon Kew, who said: “It is encouraging to see true reform proposed by the Chancellor to initiate serious dialogue around unlocking investment into the UK for productive finance to drive sustainable economic growth.”

Kew added that as long as members were protected and UK investment could be “kick-started” successfully, then the proposals should be approached positively.

However, Gallagher UK Benefits & HR Consulting Division CEO, David Piltz, argued that the “key challenge” was balancing consolidation with the risk of creating concentration.

“While pooling assets can certainly lead to efficiencies, too much consolidation could leave us vulnerable, with pension funds overly concentrated in just a few large investments,” he added.

Piltz suggested a framework should be created in which investments “fight for their place” across a wide range of independent pension portfolios, ensuring price competition, better due diligence, and reducing the risk of overexposure to underperforming investments.

He also warned that centralising everything under a national fund could impose a “one-size-fits-all model”, which may not be aligned with the goals of all local authorities or meet the needs of all beneficiaries.

Independent Governance Group head of policy and external affairs, Lou Davey, said the government’s aims were “worthy” and had the potential to deliver greater value for DC pension savers and boost investment in a broader range of productive assets.

Davey was “pleased” that the government decided not to mandate investment in particular asset classes but emphasised that if the government expected pension funds to invest in the UK, trustees would need a “sufficient” supply of good quality investments and be assured of the quality of the assets were compatible with their fiduciary duty.

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