Your Pension Fund Has a New Mission: Rebuilding Your Town. Here’s What You Need to Know.

Your Pension Isn’t Just a Number Anymore

For most of us, a pension is an abstract number — a figure tucked away for a distant future. It represents years of work, but its real-world connection can feel remote. However, a massive shift is underway that could change all that. The vast pools of capital in local government pension schemes are being redirected with a new mission: to invest directly in the towns, cities, and regions where their members live and work.

This movement is a direct response to a puzzling paradox at the heart of the UK economy. Despite having a globally competitive financial sector, the country has suffered from decades of chronic underinvestment compared to its peers. A recent report from the Institute for Public Policy Research (IPPR) found that “the UK has had the lowest level of investment [public and private] in the G7 for 24 of the last 30 years.” The recent Good Economy White Paper unpacks the most surprising and impactful takeaways from the plan to turn our local pensions into a powerful engine for rebuilding our communities.

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —

The Sheer Scale of This Is Staggering

The amount of money we are talking about is almost difficult to comprehend. The Local Government Pension Scheme (LGPS) in England and Wales currently has a market value of nearly £400 billion as of March 2024. But the real story is its growth and consolidation. Projections show this sum is expected to more than double, reaching £1 trillion by 2040.

To wield this capital more effectively, a landmark reform is underway to restructure the eight existing pension pools into six larger “megafunds.” This structural upheaval is profoundly significant. It re-frames the LGPS from simply a collection of pension pots into a cornerstone national resource — one with the scale and power to close the UK’s long-standing investment gap and fund a new generation of domestic projects.

It’s About Fixing the UK’s Puzzling Investment Problem

The push for local investing is a direct response to a deep-seated economic problem. The UK suffers from “entrenched regional and social inequalities” that are “more extreme… than most OECD countries.” This isn’t just a social issue; it’s an economic one, rooted in decades of underinvestment in critical areas like housing, infrastructure, and key industrial sectors.

What makes this problem so counter-intuitive is that it has persisted despite the UK’s world-class financial sector. For years, vast amounts of capital have been managed in the UK but invested elsewhere, while our own communities have been left behind. It’s now clear that public funding alone cannot fix this. Mobilising institutional capital from schemes like the LGPS is considered “essential” to complement public resources and generate the growth required to meet the country’s ambitions.

Your Pension Has a Democratic Duty to Your Community

This new strategy is built on a powerful concept: democratic legitimacy. Members of the LGPS are not just abstract pension savers; they are also local citizens with a direct stake in the health and vitality of their communities. For years, however, this relationship has been fraught with tension, marked by pension funds’ fears of political influence and wariness of “commercially unviable propositions being put forward… by local authorities.”

The new mandate seeks to rewire this historically cautious relationship. The core argument is that investing locally aligns the long-term financial interests of members with the prosperity of the places where they live. When pension funds support better housing and modern infrastructure, they create a stronger local economy that underpins the very contributions that fund their pensions. As Jim McMahon OBE MP noted in the foreword to the government’s final report on pension investment, there is a clear political and social will behind this movement:

I am particularly keen to see the LGPS use its scale to support UK investment and regional growth (especially being a planning geek!). Building on its local role and networks; including its relationships with local and strategic authorities, regional mayors, and devolved administrations, it is well placed to support a pipeline of housing, key infrastructure and regeneration projects. Funds and Pools have shown what can be achieved already, and we want to build on that with greater focus and scale.

“Local” Is More Complicated (and Smarter) Than You Think

The idea of “local” investing might seem simple, but the strategy behind it is far more sophisticated than just drawing a circle on a map. Experts and policymakers recognise that a “one size fits all” approach simply doesn’t work because different types of investments operate on different scales. This strategic thinking tailors the definition of “local” to the investment itself. Housing, for instance, is inherently tied to a specific community’s needs, while large-scale clean energy projects like wind farms naturally demand regional, cross-boundary planning. Likewise, finance for small businesses is most effective when aligned with regional economic clusters and labor markets.

This tailored approach is already in action. The Brunel Pension Partnership, for example, has worked with the Cornwall Pension Fund to create a portfolio specifically targeting affordable housing to address an acute local crisis. This prevents funds from pursuing simplistic geographical targets and instead forces them to consider the real “economic geography” of their regions. As official guidance recommends, “It will be important to avoid territorial competition and politicisation and rather develop solidarity around local investment strategies that can be effectively managed by the pools.”

This Isn’t Philanthropy: It’s a New Kind of Smart Investing

One of the biggest misconceptions about local or “impact” investing is that it means sacrificing financial returns for social good. The framework for LGPS investing makes it clear that this is not the case. The primary fiduciary duty to pension members remains paramount, and these local investments are expected to deliver “diversified, inflation-linked returns.”

The strategy focuses on institutional-grade sectors that can provide both competitive financial performance and positive local outcomes, including affordable housing, SME finance, clean energy, and infrastructure. We can already see this model succeeding in ventures like The London Fund, a collaboration between LPPI and London CIV, which is channelling capital into infrastructure and regeneration across the capital. Pension pools can balance their portfolios strategically, combining large mandates with smaller, high-impact opportunities that might offer “lower but still acceptable returns” without compromising overall financial goals. This approach isn’t about choosing between profit and purpose; it’s about integrating a third lens impact alongside the traditional two of risk and return.

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —

A Quiet Revolution in Your Pension Pot

The UK’s Local Government Pension Scheme is undergoing a quiet but profound transformation. What was once a distant financial vehicle is now being positioned as a powerful engine for local prosperity, tasked with closing a national investment gap that has persisted for decades. This is not a theoretical exercise. Pioneering funds like the Greater Manchester Pension Fund (GMPF) have proven the model works, maintaining successful local investment strategies for over 25 years.

Now, this approach is set to go nationwide, fundamentally changing the relationship between your pension and your community. What is required is the confidence to act, the discipline to embed impact alongside risk and return, and the commitment to work in partnership. The momentum is here, and the capital is ready.

If you could direct a portion of this £400 billion, what single project would you choose to transform your community?