Chancellor Rachel Reeves is preparing to unveil sweeping pension reforms that will consolidate hundreds of small retirement schemes into a limited number of large “super funds,” a move expected to boost pension savings by up to £6,000 for individual workers.
The plan, which will be formally announced later this week, aims to restructure the UK’s pensions landscape by reducing the number of defined contribution (DC) pension schemes from around 1,000 to fewer than 20. The proposed changes are designed to lower costs, improve returns, and align the UK’s system with successful international models like those in Australia and Canada.
Super Funds to Lower Costs and Increase Investment Potential
Under the new rules, smaller pension funds would be encouraged—or in some cases required—to merge into much larger funds. These super funds would benefit from economies of scale, reducing administrative and investment fees and allowing for more diversified, and potentially riskier, investment strategies.
According to Treasury estimates, the industry could save up to £1 billion annually in reduced fees alone. These savings are expected to directly benefit workers. A 22-year-old man entering the workforce today, for example, currently stands to retire with around £163,600 in his pension pot. Under the new system, that figure could rise to approximately £169,500—a nearly £6,000 increase.
This projected gain comes from a combination of lower fees—saving an estimated £2,500—and higher investment returns made possible by the scale of larger funds, potentially adding another £3,300.
Part of a Broader Plan to Boost Retirement Savings and Economic Growth
Reeves’ initiative is part of what she previously described as “dramatic reform.” In a speech last November, she emphasized that pension funds should play a more active role in economic development, stating they would “unlock tens of billions of pounds for business and infrastructure investment, increase people’s retirement savings, and drive economic growth.”
Local government pension schemes are also expected to be integrated into the broader consolidation.
Additional government policies could further increase pension savings. If all reforms succeed as projected, the average pension saver might retire with an extra £17,000, including £11,000 from other changes designed to improve fund performance and encourage investment in high-growth assets like unquoted shares.
Critics Warn of Risks and Lack of Guarantees
Despite the government’s optimism, industry experts have raised concerns about the potential downsides of the reforms. Critics argue that while large funds may have the ability to achieve higher returns, there is no guarantee they will do so.
Earlier this year, a panel of banking executives convened by the Financial Conduct Authority (FCA)—including representatives from Nationwide and Scottish Widows—expressed concerns in a letter to the government. They warned of the dangers of adopting a “one-size-fits-all” approach that might overlook individual savers’ needs.
“The main objectives of the proposals need to be clarified to achieve the intended outcomes,” the panel said. “If the goal is long-term financial resilience, then a focus on suitability and participation rather than size and price caps will have the most significant impact.”
Experts Question Investments in UK Assets
Some experts also questioned the government’s push to encourage pension funds to invest more heavily in UK-listed companies and infrastructure projects. John Ralph, a pensions analyst, warned that while such investments may align with national economic goals, they may not deliver better returns for pension savers.
Investments in private and unlisted assets, he noted, often come with higher fees and limited transparency, posing long-term risks to retirement funds.
Former Conservative pensions minister Guy Opperman echoed these concerns, cautioning that political rhetoric around private investment—such as Labour’s recent focus on the water industry—could discourage pension funds from committing to UK infrastructure, one of the key targets of the government’s new pension strategy.
Long-Term Impact May Take Decades
While the reforms promise significant long-term benefits, experts agree that the full financial impact may not be felt for decades. Many of the improvements hinge on future market performance and the ability of super funds to deliver consistent returns over the long term.
For now, the government is betting that a smaller number of more powerful funds can provide better value for pension savers—and help fuel broader economic growth in the process.
