Consolidating pension funds has the potential to reduce fees and expand access to diverse asset classes, the International Monetary Fund (IMF) has said, but warned it would be "important to guard against possible unintended side effects", including reduced competition.

In its 2025 Article IV Mission Concluding Statement for the UK, the IMF noted that its staff are supportive of the Bank of England’s Financial Policy Committee (FPC) recommendation that The Pensions Regulator (TPR) be given a formal remit to consider financial stability as part of its regulatory responsibilities.

The FPC had initially made this recommendation in March 2023, arguing that with pension funds playing an increasingly significant role in financial markets, it was essential for TPR to take systemic risks into account when making regulatory decisions.

Following the recommendation, the UK government acknowledged the need for reform and indicated it is considering changes to formally expand TPR’s remit.

In line with this, TPR announced in November 2024 a strategic shift toward a "more prudential" style of regulation.

The IMF believes that implementing this recommendation would “strengthen” the UK's ability to oversee the evolving pensions landscape and help manage potential risks from the consolidation of funds and changes in investment strategies.

As pension fund consolidation accelerates, schemes are gaining greater scale and investing in a broader array of asset classes - including illiquid assets such as infrastructure and private equity.

The Article IV report underscored that reforms to the financial sector and its regulatory architecture must strike a balance between promoting growth and preserving financial stability and continuity.

The IMF highlighted that although it supports the UK government’s ambition to enhance the role of financial services as a driver of economic growth, it cautioned that associated risks would need to be carefully managed.

“Regulatory reforms should balance simplification and modernisation with efforts to mitigate vulnerabilities,” the IMF stated.

It also suggested that changes should be clearly and effectively communicated to ensure market participants understand the evolving landscape.

This warning comes at a time when the UK government is placing an increased focus on the consolidation of pension schemes, particularly defined benefit (DB) funds, to encourage to unlock capital for long-term investment and support the UK growth agenda.

In response to the overall statement, the Chancellor of the Exchequer, Rachel Reeves, said: “The UK was the fastest growing economy in the G7 for the first three months of this year and today the IMF has upgraded our growth forecast.

“We’re getting results for working people through our Plan for Change – with three new trade deals protecting jobs, boosting investment and cutting prices, a pay rise for three million workers through the National Living Wage, and wages beating inflation by £1,000 over the past year.”

Pensions Age has contacted the Treasury for further comment.

---