Pension reform is on the cards. What might it mean for the tech sector?

As the UK government sets its sights on pension reform, hopes are high that this evening’s Mansion House speech by Chancellor Rachel Reeves will outline plans to reshape Britain’s pension fund industry. 

According to one Treasury spokesperson, speaking shortly after the Autumn Budget: “Following this week’s budget to fix the foundations of the UK economy, the Chancellor is focused on growth.

“Central to that are the next steps on pension reform, which will be set out in her Mansion House speech. This will unlock more private investment to fuel the government’s growth mission.”

Reeves is expected to echo Canada’s highly successful pension reform approach, which saw its local authority pensions merged into fewer, more consolidated funds with enhanced investment flexibility and broader economic impact. The Chancellor travelled to Canada in August to meet with leaders from the country’s largest pension funds.

For the UK tech sector and the broader innovation landscape, such a shift could unlock billions for venture capital, infrastructure, and high-growth startups that drive technology advancement.

Let’s unpack how potential reforms could impact the UK’s economic growth, the tech sector, and the broader innovation ecosystem.

The current state of play

The UK pension industry, valued at roughly £2.5 trillion, has traditionally gravitated towards low-risk, stable assets like government bonds and blue-chip equities. Defined contribution (DC) schemes and the Local Government Pension Scheme (LGPS) play a critical role, but current investment restrictions limit their capacity to fund high-growth, innovative sectors. 

Reforms to pension investments could shift these schemes towards less conventional assets such as unlisted equities, venture capital, and private infrastructure—areas that directly benefit sectors like tech.

Models for a diversified, high-return approach could include Canada’s Ontario Teachers’ Pension Plan and Caisse de dépôt et placement du Québec. These funds actively invest in private equity, renewables, infrastructure, and even tech startups. If replicated in the UK, this approach could unlock a steady flow of capital into tech startups and high-growth businesses, addressing one of the main challenges facing the sector: insufficient venture funding.

What could reform mean for the tech sector?

Economies of scale and investment potential

A consolidated pension landscape, through larger-scale funds with higher asset concentrations, could achieve lower operating costs, improved bargaining power, and better access to diverse asset classes. In the UK, this could mean stronger support for underfunded sectors, like tech, that often struggle for long-term investment. 

For example, the ATP fund in Denmark, one of Europe’s largest pension schemes, invests in complex, high-yield assets, including tech and agritech. Larger UK pension schemes could benefit from consolidation by directing more capital toward tech companies with significant growth potential. 

Currently, the South West of England, among other regions, suffers from a lack of venture capital; increased pension funding in tech could support emerging fields such as AI, green technology, and digital infrastructure.

Master Trusts and Group Personal Pensions (GPPs): each serving a niche

In a more consolidated landscape, we can expect master trusts to lead in managing larger asset pools, given their governance structures and scale advantages. Master trusts have fiduciary responsibilities and are therefore more capable of managing complex, illiquid assets that benefit economic growth. In comparison, GPPs, often more cost-sensitive, may continue to cater to smaller employers and individuals preferring simple, low-cost solutions. 

The distinction is significant for tech, as master trusts would likely invest more aggressively in high-growth and tech-driven sectors, thereby driving economic development and offering pension savers higher returns over time.

Mandated domestic allocations: could they be a game changer?

In recent years, the proportion of UK pensions allocated to domestic equities has dropped significantly, pushing many schemes to favour bonds over growth-oriented assets. 

Although large pension schemes have expressed concerns about being forced into specific asset classes, such as British stocks or infrastructure, Reeves may see some form of encouragement or incentive as a way to channel capital back into the UK economy.

Several international models offer insight into how the UK might structure incentives to encourage greater investment in domestic assets. For example:

• France’s Tax-Advantaged Funds (FCPIs and FIPs) encourage pension funds to invest in innovative, high-growth sectors by offering tax relief, fostering a thriving tech ecosystem and robust investment returns.
• Canada’s CDPQ is incentivised to invest in infrastructure and local industries, particularly through tax breaks and public-private partnerships.

In the UK, similar incentives could guide pension funds to invest in British startups and emerging tech, invigorating underfunded, dynamic regions like the South West.

Tackling the illiquidity challenge – and encouraging risk

One of the key challenges in pension investment reform is managing the illiquidity risks that come with high-growth investments like tech startups and unlisted equities. The UK government could adopt multiple strategies to address these issues:

1. Government-Backed Guarantees: Similar to Germany’s model, where government guarantees back infrastructure investments, reducing perceived risk could encourage UK pension funds to enter high-growth sectors like tech, green energy, and infrastructure.
2. Public-Private Partnerships (PPPs): These partnerships are already common in Australia, where superannuation funds contribute to large infrastructure projects with government support. For the UK, this could mean direct pension investments in critical technology infrastructure like 5G, broadband expansion, and – of particular pertinence to the South West – renewable energy.
3. Regulatory Reforms: Adjustments in regulatory frameworks could allow DC and LGPS funds more latitude in asset selection, balancing risk with high-growth investments. Norway’s Government Pension Fund Global requires a portion of its portfolio to focus on sustainable, long-term growth assets – an approach the UK might explore to steer pension funds towards tech innovation and regional growth. Given its strengths in blue and green innovation, as well as climate research, the South West would stand to benefit from such changes.

Did someone say “levelling up”?

If done well, pension reform has the potential to direct pension investments into local tech ecosystems and “level up” the regions of the UK, to coin a phrase. 

The LGPS, with its mandate to fund public projects, could play a key role in supporting tech and digital infrastructure at a regional level, much like the CDPQ in Canada, which channels assets into regional development projects.

For UK regions like the South West, which lack venture capital and rely heavily on SMEs, targeted pension investments could fuel tech startups and local infrastructure, fostering regional innovation hubs. 

By focusing on underfunded areas, reforms could help the UK bridge its regional economic divide while boosting the tech sector’s contribution to the economy.

What does all that mean for the tech sector?

By expanding pension investment allocations into high-growth UK sectors and supporting regional development, pension reforms have the potential to reshape the UK’s economic landscape and greatly benefit innovation in the South West.

For the tech sector, this means greater access to capital, enhanced regional support for startups, and a more resilient innovation ecosystem capable of delivering substantial returns for pension savers and powering economic growth.

As details emerge on Reeves’ plans, we will be closely watching how the Government’s reforms might unlock capital and reshape the UK’s innovation economy, creating opportunities for long-term growth and prosperity in the South West and beyond.

Comment from Ben Cooper, Funding and Support Lead at Tech South West

“UK pension reform could mark an unprecedented opportunity for regional growth in the South West’s tech sector. 

“By reshaping investment strategies in pension funds, we could tap into the capital needed to bolster our tech startups and scaleups, especially those working on high-impact projects in green technology, advanced engineering, and AI.

“Historically, the South West has struggled to attract venture capital compared to areas like London and the South East. Yet, we are home to a rich pipeline of talent and innovation, with universities, research institutes, and tech hubs developing ground-breaking solutions across sectors – and a return on investment that outstrips national averages outside the South East. These pension reforms, if implemented effectively, could help close the investment gap, empowering our regional businesses to compete on a national and global stage.

“However, it’s essential that reforms consider the unique needs of the regional tech economy. Flexibility in how funds are allocated, alongside incentives for long-term investments in unlisted equities and local infrastructure, will ensure funds have the confidence to invest here sustainably. We welcome the potential for public-private partnerships and tax incentives that prioritise high-growth sectors.

“This is a pivotal moment for the South West. Pension reform could mean not just capital, but a true shift towards sustained economic resilience across the UK’s regions.”