The Treasury has revealed that the Government will have the ability to set investment allocation targets under its upcoming multi-employer master trust rules as it shared details of the Pension Schemes Bill.

Under the new so-called 'megafund pension' rules the Government will keep a ‘reserve power’ to set ‘binding asset allocation targets’ for multi-employer master trusts.

This is the first time the Treasury has confirmed that it will legislate to create a power to mandate pension funds on their investment strategy.

The move is set to boost allocations to private assets to reverse long-term falls in pension scheme investment in the UK.

Investment by UK pension funds in the UK has fallen sharply, according to Treasury figures. In 2023 around 20% of UK DC scheme assets were invested in the UK in comparison to 50% in 2012.

Today’s announcement also confirmed that multi-employer master trusts must also be managing at least £25bn in assets, or have plans to reach that threshold by 2035, under the proposed legislation.

The Treasury said that evidence from Australia and Canada shows that, "this size allows pension funds to invest in big infrastructure projects and private businesses, boosting the economy while potentially driving higher returns for savers."

The Treasury believes that combined multi-employer “megafunds” will lead to over £50bn of investment into UK infrastructure and other assets, as well as driving higher returns for savers. It claims that the average earner could get a £6,000 boost to their pension pots at retirement "from consolidation alone."

Pensions Minister Torsten Bell said: “Our economic strategy is about delivering real change, not tinkering around the edges. When it comes to pensions, size matters, so our plans will double the number of £25 billion plus megafunds. These reforms will mean bigger, better pension schemes, delivering a better retirement for millions and high investment in Britain.”  

Laura Myers, partner and head of DC pensions at LCP, said the threat of Government intervention to mandate how schemes invest members’ money is “unprecedented” and a "step too far."

She said: “Trustees have a crucial role to play in ensuring that pension schemes are run in the interests of their members.  A greater focus on value for money is warranted and should not trouble the many well-run pension schemes in the UK. But the threat of government telling trustees how they should invest is a step too far. 

“Trustees use professional expertise to draw up an investment strategy which will best meet the needs of members, and this should never be over-ridden by the political priorities of the government of the day.  The industry has already voluntarily entered into various agreements to ensure that proper focus is given to investing in the UK economy and in long-term productive assets, but anything more than this risks losing sight of the primacy of member interests”.

Tom Selby, director of public policy at AJ Bell, called the asset allocation pwers a 'sword of Damocles'.

He said: “Perhaps most controversially, the government says it will create a ‘sword of Damocles’ power in legislation threatening to set mandatory asset allocation targets if schemes do not do this voluntarily. In reality, this essentially puts a gun to schemes’ heads and will create those mandatory targets in all-but-name. 

“Many of the claims about the benefits of these reforms to pension savers and retirees need to be taken with a fistful of salt. While there may be some efficiency benefits to consolidation, these are difficult to quantify with certainty and reducing competition in the market may stifle incentives to deliver innovation. In addition, private equity investing is notoriously high cost and high risk, meaning it is entirely possible people will end up worse off if those investments fail to perform over the long term. 

“There is a clear danger that conflating government policy goals – namely driving higher levels of investment in the UK and ultimately economic growth – with those of savers and retirees means the latter will be risked in pursuit of the former. It is vital the needs of pension scheme members remain the priority, rather than the needs of a government focused primarily on its growth agenda and ultimately to bolster its chances of re-election."  

Today’s announcement from the Treasury set out further details of what will be included in its Pension Schemes Bill which will soon go before Parliament.

The Chancellor has proposed that the Bill sets out new rules on how value for money is to be measured in different types of pension schemes, to allow employers and members to compare more effectively and to focus on the quality of schemes rather than just cost.

Chancellor Rachel Reeves said: “We’re making pensions work for Britain. These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses – the Plan for Change in action.” 

The final report of the Pensions Investment Review, due to also be published today, said that the reforms could drive higher returns for savers by cutting waste in the system. It found that by 2030 mutli-employer schemes could be saving £1bn a year through economies of scale and improved investment strategies.

The Pensions Investment Review also confirms the March 2026 deadline for local government pension scheme asset pooling. The Treasury has confirmed that it will retain a backstop power for the combined new DB schemes to direct the administering authority, "to participate in a specific investment pool."

Local investment targets will be agreed with local government pension scheme authorities for the first time, with £27.5bn reserved for "local priorities".