A host of the biggest names in UK tech have thrown their weight behind plans unveiled by Rachel Reeves to create pensions ‘megafunds’ with the potential to invest in fast-growth businesses.

Top tech organisations including Startup Coalition, Founders Forum and Tech Nation have backed the plans, which will see the creation of eight funds through consolidating defined contribution schemes and pooling assets from the 86 separate Local Government Pension Scheme authorities.

The organisations have penned an open letter to the Chancellor, expressing their hope that the move will “catalyse the growth of emerging industries”.

The letter reads: “Pension reform is one of the biggest levers the government can pull to meet its growth mission.”

“We support your proposed reforms which respond to the changing investment landscape where traditional models, heavily reliant on bonds and low-risk assets, are no longer sufficient to meet the needs of today’s pensioners.

“By redirecting a portion of pension fund assets into domestic innovation, we can catalyse the growth of emerging industries, create high-quality jobs, and support the development of a sustainable economy, as well as ensuring that pension savers are able to benefit from risk-adjusted returns of high-growth sectors.”

The reforms, which will be introduced through a new Pension Schemes Bill next year, mirror set-ups in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential. The government hopes the changes could deliver as much as £80bn of investment in new businesses and critical infrastructure while boosting defined contribution savers’ pension pots.

The government’s own analysis suggests that pension funds begin to return much greater productive investment levels once the size of assets they manage reaches between £25-50bn, at which point they become better placed to invest in a wider range of assets, such as fast-growing startups and expensive infrastructure projects. Australian pension schemes invest around three times more in infrastructure and 10 times more in private equity compared to Defined Contribution schemes in the UK.

Dom Hallas, executive director at Startup Coalition, told UKTN: “Pension fund reforms are one of the biggest growth levers the Treasury can pull. Once it’s delivered we should see billions more into the British venture-backed tech ecosystem – which is not only good for founders, it’s good for the pensions of British workers too.”

The UK pension system is one of the largest in the world – with the Local Government Pension Scheme and Defined Contribution market set to manage £1.3tn in assets by the end of the decade. The Local Government Pension Scheme in England and Wales will manage assets worth around £500bn by 2030. These assets are currently split across 86 different administering authorities, managing assets between £300m and £30bn, with local government officials and councillors managing each fund.

Marc Bouchet, Senior Investment Associate at TDK Ventures, told UKTN: “Historically, Europe’s hamstringing of pension funds’ ability to build portfolios that include risky asset classes like venture capital has been a net negative for founders.

“When venture investors have institutional investor LPs who are purely seeking risk-adjusted returns rather than government funds or private investor schemes, as we see in the UK and broader European landscape, those VCs can deploy capital that has a single purpose, fully aligned with the best entrepreneurs. No grey zones, no zombie companies, and no alternative mandates.”

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