Rachel Reeves has told City chiefs she plans to create pension “megafunds” that will “power growth” in the economy and reward British savers.

In her first Mansion House speech as Chancellor of the Exchequer, Reeves announced plans for the megafunds which she said could bring in £80 billion to invest in businesses and infrastructure.

The reforms will be introduced through a new Pension Schemes Bill next year, consolidating defined contribution schemes and pooling assets from 86 local government pension scheme authorities.

The megafunds will mirror schemes in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential.

The chancellor said: “Australian pension schemes invest around three times more in infrastructure investment compared to defined contribution schemes in the UK and 10 times more in private equity—including in high-growth businesses—compared to the UK.

“One of the key reasons for this is the much larger size of their funds.

“While our pensions landscape remains highly fragmented, that means many of our pension funds do not have the capacity to invest at the scale required.

“And more often than not, it is Canadian teachers and Australian professors reaping the rewards of investing in British productive assets through their pension schemes, rather than British savers.

“That’s not good enough, and we need to change that.”

She told City chiefs: “We will take a more proactive approach to working with investors to ensure that capital is directed to the UK’s biggest growth opportunities.”

During the speech, the government published its interim pensions investment review.

“It sets out our plans to create Canadian and Australian-style megafunds to power growth in our economy,” Reeves said.

She also pledged to rip up financial red tape, arguing that regulatory changes following the 2008 economic crash have “gone too far” as she announced a package of reforms aimed at driving competition across financial services.

The chancellor has sent “growth-focused remit letters” to the Financial Conduct Authority, Prudential Regulation Committee, Financial Policy Committee & Payment Systems Regulator to push for a greater focus on growth.

She described the financial services sector as “the crown jewel in our economy”.

“But we cannot take the UK’s status as a global financial centre for granted,” she said.

“In a highly competitive world we need to earn that status and we need to work to keep it.”

She said it was “right” to make regulatory changes after the global financial crisis but that they have resulted in a system that “sought to eliminate risk-taking”.

“That has gone too far and, in places, it has had unintended consequences which we must now address,” she said.

The Treasury said “high regulatory standards will be maintained” but parts of the system will be “rebalanced to drive economic growth and competitiveness”.

For example, the government will also consult on replacing the certification regime, which seeks to strengthen market integrity and applies to staff below senior management level, because elements of it have become “overly costly and administratively burdensome”, Reeves said.

She announced changes to the Financial Ombudsman Service, which deals with complaints between consumers and firms, as part of the shake-up.

Meanwhile, a pilot scheme will be launched to deliver “digital gilts” – tokenised Government bonds that are issued on a blockchain – in a move to better embrace technology.

The chancellor, home secretary and technology secretary have also written to the tech and telecommunication sectors calling for tougher action in reducing the scale of fraud taking place on their platforms and networks.

A progress update has also been requested by March 2025 ahead of an expanded fraud strategy.

Reeves will also commit the government to publishing the first ever financial services growth & competitiveness strategy in the spring, which is aimed at providing long-term certainty for the sector.

She will propose focusing on five priority areas in financial services to take advantage of the UK’s existing strengths and boost the potential for growth.

These will be financial technology, sustainable finance, asset management and wholesale services, insurance and reinsurance and capital markets.

The chancellor also called for free trade with the US under incoming president Donald Trump, and a reset with the “our biggest trading partner” the EU.

She said: “I will always do what is in our national interest, for our economy, for our businesses and for the British people. That means free and open trade, especially with our most economically important partners.

“This includes the US, our single most important destination for financial services trade.

“And there is so much potential for us to deepen our economic relationship on areas such as emerging technologies.

“I look forward to working closely with President-elect Trump and his team to strengthen our relationship in the years ahead.

“And of course, our biggest trading partner is the EU. We will not be reversing Brexit, or re-entering the single market or customs union. But we must reset our relationship.”

source: PA

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.