Pension Reforms to Unlock £80 Billion: Impact on SMEs in Public Procurement
22.01.2025
The UK government is introducing transformative pension reforms designed to unlock £80 billion in investment for infrastructure projects, innovative businesses, and local communities. For SMEs, this presents both new challenges and significant opportunities in the realm of public procurement.
The reforms, announced by Chancellor Rachel Reeves, will consolidate assets from the Local Government Pension Scheme (LGPS) and defined contribution schemes into large-scale "megafunds." By pooling resources and adopting governance models similar to those in Canada and Australia, the government aims to maximize investment potential, boost economic growth, and modernize the public procurement landscape.
The Pension Schemes Bill will consolidate the fragmented UK pension system, creating a small number of professional megafunds. These funds will be capable of investing in large-scale projects, from infrastructure to innovative start-ups, areas where SMEs can make a strong impact. The reforms also aim to enhance governance and efficiency, ensuring investments deliver greater value for savers while driving local and national economic growth.
For SMEs, this means an evolving public procurement environment where ethical practices, community impact, and innovation are more crucial than ever. A key feature of the reforms is the introduction of local investment targets for LGPS megafunds. Each authority will be required to allocate a portion of its assets to local communities, potentially securing more than £20 billion in funding for regional projects. This represents a unique opportunity for SMEs to secure public contracts, provided they can demonstrate their ability to deliver impactful, community-focused solutions.
"These reforms will unlock tens of billions of pounds for business and infrastructure, drive economic growth, and boost retirement savings—making every part of Britain better off." - Chancellor, Rachel Reeves
What This Means for SMEs
The pension reforms have a range of potential implications for SMEs in public procurement, both positive and challenging:
Increased Access to Investment Opportunities: With LGPS megafunds required to allocate a portion of their assets to local projects, SMEs may benefit from greater funding opportunities for infrastructure and community-based initiatives.
Heightened Competition for Contracts: The creation of larger, professionally managed funds could lead to bigger and more complex projects, which may favour larger firms with more resources and experience.
Pressure to Scale Up: Larger-scale projects could require SMEs to expand their capabilities or collaborate with other firms to meet the demands of these contracts, potentially straining smaller operations.
Potential for Regional Growth: By prioritising local investment, the reforms could support regional economies, offering opportunities for SMEs operating in those areas to play a more active role in delivering key projects.