Industry experts have broadly welcomed the Chancellor's plans to create pension 'megafunds', highlighting the pensions investment review as an "opportunity" to accelerate consolidation progress.

HM Treasury confirmed that Chancellor, Rachel Reeves, is set to announce plans to create 'pension megafunds' in her upcoming Mansion House speech, as part of a "radical" set of pension reforms.

The Pensions Regulator (TPR) welcomed the "bold reforms", with chief executive, Nausicaa Delfas, suggesting that the changes will "accelerate the move towards a consolidated market of fewer, larger pension schemes better equipped to deliver for savers and invest in the UK economy".

“Backed by new powers, we can make sure larger schemes deliver real value for money for pension savers and raise standards across the market, while also encouraging innovation in new models," she stated.

Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy, Zoe Alexander, also described the reform proposals as a "positive step towards ensuring our system delivers the best value for money for savers".

“Larger pension schemes can help achieve better outcomes for savers through economies of scale, stronger governance, negotiating power and additional resources," she continued.

"We support consolidation where it is in the interests of members and represents value for money.

“These are a positive set of ambitions from the government and for the sector. We look forward to working through the details of the proposals so that they work for savers and schemes.”

This was echoed by Standard Life CEO, Andy Curran, who pointed out that scale has already been used to drive better outcomes for savers and boost investment in other countries.

Royal London group chief executive, Barry O'Dwyer, also suggested that the reforms will allow pension savers access to a more diversified range of investments and will help the industry to move customers from older, poorer performing products.

Potential reforms to the LGPS have also been welcomed, as Local Pensions Partnership Investments CEO, Chris Rule, said that while LGPS pooling has delivered early successes, "there is more we can do".

"The Pensions Review provides the opportunity to build upon success to date and accelerate progress," he continued.

“Since the launch of the review government has been proactive and very broad in its engagement and we look forward to continued dialogue."

Adding to this, Brunel Pensions Partnership CEO, Laura Chappell, said: "Pooling has already delivered shared benefits for our pool partners across diversification, UK local investment, responsible investment, and economies of scale, and so we welcome this evolution of the next stage in pooling.

"This review goes further in aligning our shared interests with our partner funds and we are looking forward to the exciting opportunities this might bring to the partnership, while investing for a world worth living in."

In addition to this, industry experts welcomed the news that the government is seemingly not looking to mandate pension investments, with Broadstone head of market engagement, Simon Kew, suggesting that the Chancellor "appears to have recognised the challenge – and controversy – of mandating investment in asset classes".

This was echoed by Mercer head of UK wealth strategy, Tess Page, who said: "We are pleased to see that decision making bodies will continue to be able to make investment decisions without mandating certain allocations."

However, Page said that it was surprising not to hear more at this stage on potential incentives, arguing that initiatives to make it easier for institutional investors to invest at scale in UK opportunities should also be combined with incentives, either through the tax system or through other risk sharing mechanisms.

"Otherwise, decision makers and fund managers are likely to arrive at the same conclusion that there are more attractive investments for their members elsewhere," she said.

And despite broader support for the reforms, some have raised concerns over the market's ability to offer enough substantial and reliable opportunities in the UK infrastructure sector.

"It’s a chicken-and-egg dilemma," Quilter head of retirement policy, Jon Greer, said. "If too much money chases too few viable investments, the effectiveness of this consolidation could be diluted, with funds potentially forced into riskier or less impactful projects.

"The government will need to work actively to develop a pipeline of investable opportunities that align with the megafunds’ scale and risk requirements."

Page agreed, emphasising that "there still needs to be viable investments in the UK for the funds to invest in to ensure they can achieve the best returns for members".

Industry experts have also been quick to stress the need to keep members at the forefront of any investment decisions, as Aon investment practice partner, Colin Cartwright, stressed that any UK investments "will need to be able to stand on their own merit from a risk and return perspective if they are to be effective and benefit those savers and employers".

AJ Bell director of public policy, Tom Selby echoed this, warning that "conflating a government goal of driving investment in the UK and people’s retirement outcomes brings a danger because the risks are all taken with members’ money".

"If it goes well, everyone can celebrate," he acknowledged. "But it’s clearly possible that it will go the other way, so there needs to be some caution in this push to use other people’s money to drive economic growth."

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