Government proposals to combine Local Government Pension Scheme (LGPS) funds into a single national fund could “unlock” almost £40bn of investment in infrastructure, Pension Insurance Corporation (PIC) has estimated.

The insurer said that council pension reform has been gaining momentum, with the government launching a pension review to consolidate the 86 English local council schemes, potentially creating a single local government fund.

PIC noted that English council pensions manage a total of £400bn of assets, overseen by dozens of managers and local politicians.

Given this, PIC explained that LGPS schemes often pay above-average fees and invest very little in the most productive assets such as venture capital, life sciences and infrastructure.

However, PIC said that if the LGPS schemes amalgamated into a single fund, it could invest like the Canada Pension Plan Investment Board (CPPIB), which manages about £360bn to fund Canadian public sector pensions.

CPPIB has a long-term investment strategy, involving investing directly in private companies and large infrastructure projects.

Indeed, around 9 per cent of CPPIB’s assets are invested in infrastructure, compared to 3 per cent of LGPS assets.

PIC suggested that a single LGPS scheme running similarly to a Canadian scheme could put up to £40bn into infrastructure projects such as green energy, electricity grids and transport networks.

“Consolidating many LGPS schemes into a single fund would give Britain a real sovereign wealth fund that could be run and managed to the same professional standards as world-leading schemes like Canada’s,” PIC CEO, Tracy Blackwell, commented.

Blackwell explained that a single LGPS with a long-term investment strategy might put up to £40bn into “vital” infrastructure, suggesting that it could make a “big difference to the UK’s economic prospects”.

“This shows that with the right approach to purposeful investment, pension assets can deliver huge economic and social value to Britain,” she said.

In a briefing for policymakers on LGPS reform earlier this year, PIC estimated that LGPS consolidation could save taxpayers £1bn a year in fees to investment managers.

PIC said the government has now made a similar estimate of potential savings.

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