Reform UK Pension Plans Could Change Local Worker Retirement Income from 2026

Reform UK wants to merge local government pension funds. This could mean more money invested in UK companies, but critics worry about lower retirement pay for new workers.
By Newsroom | Politics, Finance |

A proposal by Reform UK to significantly change pension schemes for new local government workers has drawn strong reactions. The party's deputy leader, Richard Tice, is set to outline plans that include altering environmental targets and employment rights, alongside changes to pensions. These proposals aim to merge numerous local government schemes into a few larger funds and encourage greater investment in UK markets. However, critics, including trade unions and financial experts, argue that these changes could leave retired workers with less income and might not solve the financial issues faced by local councils.

Pension Proposals Spark Debate Over Worker Security and Investment Strategy

Reform UK, a political party, has indicated intentions to restructure the pension systems for individuals entering local government employment. A key aspect of these proposed reforms involves consolidating many of the existing, separate local government pension schemes into a smaller number of larger investment funds. This initiative is presented as a measure to boost economic growth by directing more pension fund assets towards British companies and products.

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While the government has no immediate plans to discontinue the guaranteed nature of current defined benefit pension plans, the specifics of how these new, larger funds would operate and the potential impact on future benefits remain a subject of considerable discussion. The proposals suggest a mandate for these schemes to hold a larger proportion of their accumulated assets in domestic investments.

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Key Actors and Timeline of Events

The discussion surrounding local government pensions has involved various stakeholders, including the political party Reform UK, trade unions such as UNISON, and government bodies.

  • Reform UK, represented by figures like Richard Tice and Nigel Farage, has put forward proposals to reform pension schemes.

  • UNISON, a public service trade union, has voiced strong opposition to these proposals.

  • The UK Government has also been pursuing reforms to pension schemes, including the creation of "pension megafunds" aimed at unlocking investment.

The timeline of published statements and reports indicates a recent surge in activity:

  • November 2024: The Chancellor announced plans for "pension megafunds" as part of reforms to drive economic growth.

  • May 2025: Ministers discussed major Local Government Pension Scheme (LGPS) overhauls aimed at tackling inequality, including making maternity leave automatically pensionable.

  • June 2025: A report highlighted Reform UK's plans regarding Local Government Pensions, referencing Nigel Farage's past comments on his own pension.

  • September 2025: UNISON and Pensions UK released statements reacting to Reform UK's pension proposals, with both expressing concerns.

  • Present (approximately 23 hours ago): A report detailed Reform UK's vows to overhaul pension schemes for new local government workers.

Evidence and Data Points

The information concerning pension reforms and their potential impacts is drawn from several sources:

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  • Reform UK's Stated Intentions: Deputy leader Richard Tice is slated to deliver a speech outlining plans to overhaul local government pension schemes. This includes merging schemes and increasing investment in UK markets.

  • UNISON's Opposition: The trade union UNISON stated that forcing council staff onto "inferior pensions" would negatively affect retired workers and worsen recruitment issues in local government. They argue that pension issues are not the root cause of councils' financial difficulties.

  • Pensions UK's Perspective: This organization noted that existing schemes have a high proportion of domestic investments and have shown financial resilience. They suggest potential savings could be passed to taxpayers.

  • Government Reforms: The UK government has advanced plans to create consolidated "pension megafunds" from the 86 separate Local Government Pension Scheme (LGPS) authorities, aiming to unlock significant investment in infrastructure and businesses. These reforms are intended to be introduced via a new Pension Schemes Bill.

  • Investment Performance: Over the last 20 years, UK share investments have reportedly yielded lower returns compared to US shares, though UK shares have performed better year-to-date.

  • MP Pension Scheme: For contrast, an MP on a salary of £93,904 could earn an annual pension of £9,206 after one five-year term, with inflation-linked increases and a survivor's pension.

Pension Scheme Mergers and Investment Strategy

A central tenet of Reform UK's proposals is the consolidation of local government pension schemes. The aim is to reduce the current multitude of schemes, estimated at 86 in England and Wales, into a smaller number of larger funds.

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  • Goal: To create economies of scale and potentially improve investment performance and governance.

  • Mechanism: Pooling assets from existing local government pension authorities.

  • Proposed Investment Focus: A significant portion of these consolidated funds is intended to be directed towards investments in British companies and products. This is presented as a strategy to stimulate domestic economic growth.

However, this push for increased domestic investment has met with objections:

  • Criticism from Pension Providers: Some pension providers have voiced concerns about mandated domestic investment.

  • Governor of the Bank of England's View: The Governor of the Bank of England has also reportedly expressed reservations regarding proposals that would force pension funds to invest more in domestic markets.

  • Historical Returns: Data suggests that UK share investments have historically provided lower returns over the past two decades when compared to US share investments, although recent performance has shown an improvement for UK shares.

Impact on Local Council Finances and Worker Benefits

The debate over pension reform is closely tied to the financial stability of local councils and the welfare of their employees.

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  • UNISON's Stance: The union contends that proposed changes, particularly forcing staff onto "inferior pensions," would not resolve the financial pressures on councils. Instead, it is argued that these changes would negatively impact retired workers' income and exacerbate existing recruitment challenges within local government.

  • Reform UK's Rationale: While not explicitly detailed in the provided text, the broader objective of pension reform often includes efficiency gains and cost reductions, which Reform UK suggests could lead to savings. These savings, if realized, might be passed on to taxpayers through lower council tax, though such decisions are ultimately up to individual councils.

  • Defined Benefit vs. Defined Contribution: The current local government schemes are generally defined benefit plans, offering a guaranteed income in retirement. Reform UK has stated no current plans to end the guaranteed nature of these existing plans.

Worker Protections and Broader Policy Context

Beyond pensions, Reform UK's agenda reportedly includes wider changes to employment rights and environmental targets.

  • Employment Rights: Proposals include scrapping new employment rights, potentially affecting protections related to sick pay and unfair dismissal.

  • Environmental Targets: The party also intends to abandon the government's current environmental targets.

  • Comparison to MP Pensions: Critiques of Reform UK's proposals have drawn comparisons to the pension schemes available to Members of Parliament (MPs). An analysis suggests MPs can accrue substantial inflation-linked pensions after relatively short periods of service, raising questions about fairness and cost.

Expert Analysis and Union Concerns

Trade unions and financial observers have expressed significant reservations about the proposed pension reforms.

  • Christina McAnea, UNISON General Secretary, stated: "Forcing council staff on to inferior pensions would leave retired workers worse off and add to the already severe recruitment crisis in local government." She further asserted, "Employees’ pensions aren’t the reason so many councils are on a financial precipice."

  • Pensions UK has indicated that the Local Government Pension Scheme (LGPS) already holds a substantial proportion of its investments in domestic assets and has demonstrated financial stability. They suggest that any potential savings from consolidation could be beneficial for taxpayers.

The underlying concern is that changes aimed at economic stimulus might come at the cost of worker security. The government's own reforms, focused on creating "pension megafunds," are also intended to unlock investment, but through consolidation rather than necessarily altering the fundamental nature of defined benefit schemes or mandating specific domestic investment ratios.

Conclusion and Implications

The proposed overhaul of local government pension schemes by Reform UK presents a complex interplay of objectives: stimulating economic growth through investment consolidation, potentially reducing costs, and impacting worker benefits.

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  • Investment Strategy: The plan to merge schemes and channel more assets into UK markets is aimed at boosting domestic growth. However, concerns exist regarding the historical performance of UK investments compared to international alternatives and the potential imposition of risks on pension funds.

  • Worker Impact: Critics, particularly UNISON, argue that any move towards "inferior pensions" would disadvantage retired workers and worsen local government recruitment.

  • Council Finances: The assertion that pension reform is the key to resolving council financial woes is challenged, with unions pointing to years of budget cuts as a more significant factor.

  • Broader Reforms: The pension proposals are part of a wider agenda by Reform UK that also includes changes to environmental and employment rights, which are likely to face scrutiny.

The implications of these proposals are significant for current and future local government employees, potentially altering their retirement security. They also raise questions about the effectiveness of mandated domestic investment strategies for pension funds and the overall approach to public sector finance and worker protections. Further details on the operational mechanisms and the specific nature of benefit adjustments will be crucial in evaluating the full impact.

Key Sources and Context

Frequently Asked Questions

Q: What does Reform UK want to do with local government pensions?
Reform UK wants to merge many small local government pension funds into a few bigger ones. They also want these funds to invest more money in UK businesses and products.
Q: Who will be affected by Reform UK's pension proposals?
The proposals mainly affect new people who start working for local government. Current workers' guaranteed pensions are not planned to change right now.
Q: Why does Reform UK want to change the pension schemes?
The party believes merging funds will make them more efficient and help boost the UK economy by investing more in British companies. They also suggest it could help councils save money.
Q: What are the main worries about Reform UK's pension plans?
Critics, like the UNISON union, worry that these changes could lead to lower retirement income for workers. They also argue that pension problems are not the main reason councils have money troubles.
Q: Will more money be invested in UK companies because of these plans?
Yes, Reform UK wants to make sure a larger part of the merged pension funds is invested in UK markets. However, some experts note that UK investments have historically given lower returns than US investments.
Q: Are there plans to change employment rights and environmental targets too?
Yes, Reform UK has also mentioned plans to change some employment rights and abandon current environmental targets as part of their wider policy ideas.