Some British pension funds will be required to merge into large "megafunds" with a minimum of £25 billion ($34 billion) in assets by 2030, the UK government announced on Thursday.

The move is part of broader efforts to stimulate domestic investment and mirror the more consolidated pension systems seen in countries like Australia and Canada.

The reforms will target smaller pension schemes, urging them to consolidate in order to enable larger-scale investments and improve returns for savers.

“We're making pensions work for Britain,” said Finance Minister Rachel Reeves. “These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses.”

This initiative builds on the government’s ongoing drive to boost UK investment, including a recent commitment from 17 investment firms to inject £50 billion into British companies and infrastructure.

The changes will be detailed in a forthcoming pensions bill and will apply specifically to multi-employer defined contribution schemes and local government pension funds.

Funds that fail to meet the £25 billion threshold by 2030 could face penalties, such as losing eligibility for auto-enrollment contributions, which would be redirected to larger qualifying schemes, a government official told Reuters.

However, pension schemes with assets above £10 billion will be allowed to continue operating if they can present a clear roadmap to reach the £25 billion goal by 2035.

Additionally, local government pension schemes will receive new local investment targets. The government estimates this could channel £27.5 billion into local projects. To streamline operations, the assets currently spread across 86 local authorities will be consolidated into six large investment pools.