Will Rachel Reeves’ pension shake-up really boost growth?

As Chancellor Rachel Reeves prepares to deliver her first Mansion House speech in the City of London tonight, one word is set to be emphasised: growth.

‘Last month’s Budget fixed the foundations to restore economic stability and put our public services on a firmer footing,’ she will tell her audience of bankers and City workers. ‘Now we’re going for growth.’ Her sights are set on pensions. The Chancellor is expected to announce what is being billed as the ‘biggest set of reforms to the pensions market in decades,’ with the Treasury estimating these changes could unlock up to £80 billion in additional investment for Britain.

Drawing on pension models from Canada and Australia, Reeves aims to increase the size of public sector pension funds – a factor she believes has held funds back from making larger, more fruitful investments. The Local Government Pension Scheme will be overhauled, merging the UK’s 86 council pension schemes into several ‘pension megafunds’ run by investment specialists rather than local government, in a bid to secure better returns. Reeves is also expected to outline new objectives for the Bank of England and the Financial Conduct Authority, placing greater emphasis on growth.

The focus on pensions comes just two weeks after Reeves presented her first Budget to Parliament, billed as a growth accelerator. Unfortunately for Labour, the Office for Budget Responsibility (OBR) had a different perspective. Despite Reeves’s pledge that ‘every Budget’ would focus on Labour’s mission to grow the economy, the OBR downgraded its growth forecasts for the latter half of this Parliament. The projections fall short of the annual growth rate needed to adequately fund and sustain public services. Now, the Chancellor is on the hunt for supply-side reforms and growth measures. Pensions reform is at the heart of her agenda.

But not everyone is convinced. While there is broad agreement that pension reform is overdue, concerns remain that these ‘mega-funds’ could sideline smaller companies. Gervais Williams, head of equities at Premier Miton, told the BBC that it was a ‘mistake’ to merge the funds, noting concerns that, ‘by implication, they’ll invest in mega companies and many smaller companies will be, unfortunately, less significant in them going forward.’ Tom Selby, head of public policy at AJ Bell, echoed these worries. He raised concerns about the difference between investing for the economy and investing for individuals’ retirement: ‘My overarching concern is that the needs of the saver, whose money is ultimately going to be risked, will be forgotten about.’

Another worry remains: while Labour has won a mandate for reform across housing, healthcare, and other areas, measures in the Budget – and their impact on investment – risk overshadowing the benefits of pension reform. Outstanding questions remain on how far the government will go to incentivise investment in UK funds and infrastructure, and whether it might even become mandatory. It’s a potential move with mixed support – notably not from Bank of England Governor Andrew Bailey, who will also be speaking alongside Reeves this evening. This is one of many technical points to be resolved as the Chancellor pushes for reform.