Chancellor Rachel Reeves has announced plans to increase pension pots by £6,000 for millions of workers by ensuring funds cut costs and have more freedom to invest.She today confirmed that the Government will require smaller multi-employer Defined Contribution pension schemes to join forces and create “megafunds”, each with at least £25 billion in assets. This will affect many workers who pay a portion of their salary into a pension fund each month.

But pension fund managers have expressed concern after she threatened to force them to invest more in the UK.In a defined contribution system, the money is invested and is usually used to provide an income once a person retires. By creating larger funds, the Chancellor says funds will cut costs and be better able to invest in infrastructure, new homes and businesses, boosting the economy as well as providing a better return.

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Local Government Pension Scheme pools will also become megafunds, the Chancellor said. New figures from the final report of the Pensions Investment Review today showed that these reforms will drive higher returns for savers, in part by cutting waste in the system. By 2030 these schemes could be saving £1 billion a year through economies of scale and improved investment strategies.

As a result, an average earner who saves over their career could see a £6,000 boost to their Defined Contribution pension pot at retirement.

The move will also provide over £50 billion investment in the UK, the Chancellor said.

Ms 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.”

Deputy Prime Minister Angela Rayner said: “The untapped potential of the £392 billion Local Government Pension Scheme is enormous. Through these reforms we will make sure it drives growth and opportunities in communities across the country for years to come – delivering on our Plan for Change.”

However industry experts have expressed concern after the Chancellor warned she could force pension funds to invest in UK infrastructure if they failed to do so voluntarily. A new Pension Schemes Bill will give her the power to set binding asset allocation targets, although this will not be used initially.

Many pension firms have said they plan to invest more in the UK but say they have a duty to get the best possible return for investors, even if that means investing elsewhere such as the US stock market.

Local Government Pension Schemes will be expected to invest some of their money in local projects identified by regional mayors and councils.

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.”