The UK government could follow a Canadian pensions model that would see it consolidating government pension schemes into fewer, larger schemes with a better return.
Chancellor Rachel Reeves will host a round table today (7 August) with the head of Canada’s Maple 8 pension funds in Toronto.
The Maple 8 is a group of “giant” pension funds including the Ontario Teachers Pension Plan and the Canada Pension Plan, which are themselves large international investors that support the Canadian economy.
Doing something similar in the UK with smaller local government pension schemes, thought to be worth £360bn, could “fire up the economy” in a similar way here, according to Reeves.
She told a group of Wall Street investors earlier this week that the new government had plans to bring in “the pension system to try and unlock some of the long-term patient capital to invest in listed and unlisted UK equities and infrastructure”.
Local authorities operate 86 schemes on behalf of more than 6 million current and former employees. There are already eight regional pools, known as the Local Government Pension Scheme, but they are in varying states of financial health.
Reeves’ predecessor Jeremy Hunt had also aired the idea of consolidating smaller defined benefit schemes run by local authorities to invest in UK companies and infrastructure.
A further advantage of pooling the schemes would be a reduction in administration costs and fees, meaning higher returns for taxpayers.
She said: “The size of Canadian pension schemes means they can invest far more in productive assets like vital infrastructure than ours do.
“I want British schemes to learn lessons from the Canadian model and fire up the UK economy, which would deliver better returns for savers and unlock billions of pounds of investment.”
Reeves has announced a review, which will be overseen by pensions minister Emma Reynolds. Observers believe this will inform a new pensions scheme bill over the coming months.
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