The government has fleshed out its plans to reform the UK pension industry, including the creation of £2.5 billion “Megafunds”, which will be directed to make a portion of local investments to help boost economic growth.

The prime minister said that overhauls aimed at following the example of huge pension investment funds in Australia and Canada will also promote people's pension cans.

"These reforms mean better returns for workers, with billions of dollars investing in clean energy and high-growth businesses," Rachel Reeves said.

In a voluntary agreement earlier this month, 17 of the UK's largest pension companies have approved the gist of the reforms.

However, the government also includes a legislative backend that will allow it to push for new rules if progress is insufficient at the end of the decade.

The government said it does not want to use new big powers.

However, this factor may lead to criticism, with some industries opposing government tasks in ways and locations of investment.

Zoe Alexander, director of the Pension and Lifetime Savings Association, said the changes would have a “significant impact” on the operation of the pension plan.

But she added: “The increased merger has the potential to improve retirement outcomes by improving governance, broader investment diversification and increasing bargaining power.”

Miles Celic, the UK CEO, who represents the financial services industry, supports the Prime Minister's assertion that the move "helps drive economic growth."

Former Liberal Democratic Pension Secretary Steve Webb is now a partner at consultant LCP (Lane Clark & ​​Peacock), who described the news as "a real pension plan, its members, their members and the companies standing behind them."

He added: “The government is clearly bold in this area, which opens up the potential of this surplus fund to more effectively utilize program members, companies and the broader economy.”

Labour’s first step after taking office last year was to announce a pension review.

In November, the Prime Minister proposed her “Megafunds” plan, which covers retirement savings for most British workers.

First, there are 86 different local authorities' pension plans that provide more than 6 million retirees to most low-wage women. The £39.2 billion in these defined benefits plans will be consolidated in only six asset pools by March next year.

In a defined benefit plan, workers pay their pensions and pay the scheduled amount based on their wages and service hours.

The U.S. Treasury Department said local authorities' pension plans will be agreed for the first time.

Second, the current £80 billion defining donation scheme, as well as millions of other private and public sector workers across the country, will also be merged.

In a defined contribution plan, workers cannot guarantee a specific amount. Instead, their pensions depend on fund performance in the previous years of retirement.

By 2030, the government said there should be more than 20 pension funds worth more than £2.5 billion compared to the current ten.

As part of the voluntary agreement, called the "Luxury House Agreement", was agreed in early May, involving 17 companies that promised to invest 10% of their assets in other items other than publicly traded shares, so more funds will flow into home construction, infrastructure projects and startups.

Additionally, 5% of the investment will be dedicated to UK assets.

The reform will form part of the upcoming Pension Plan Bill that will be underway before Parliament.

The U.S. Treasury said the new approach would mean more than £50 billion in UK infrastructure, new homes and businesses.

On Thursday, the government is releasing its final report on its Pensions Investment Review.

It said the review found that reforms will drive higher returns for pension savers by reducing waste, economies of scale and improved investment strategies.

The Ministry of Finance said that the average income of workers could therefore increase the pension reserve pot they determined by £6,000.