Commonwealth collective: What can the UK learn from the Canadians and the Australians?

Published: October 16, 2025

Written By:

Tom Parker
Senior Writer
LAPF Investments

By consolidating fragmented pension schemes into megafunds, Rachel Reeves hopes to channel billions into UK infrastructure, housing and energy transition projects. The strategy borrows heavily from Canadian and Australian models that have transformed their economies – but will it work in Britain?

Rachel Reeves has looked at the Canadian and Australian pension systems with interest for a number of years, praising their scale, governance and higher allocations to “productive assets” compared with the UK.

As shadow chancellor in 2024, she argued Canadian pension schemes invest “far more in productive assets” than those in the UK and said she wanted British schemes to “learn lessons from the Canadians” to “fire up the UK economy”.

She reiterated this position later that year when she held a roundtable with Canada’s “Maple 8” on a fact-finding mission, exploring a model she is now looking to replicate in the UK. The starkest indication of her intentions, however, came from her Mansion House speech in November 2024.

She said: “Australian pension schemes invest around three times more in infrastructure compared to defined contribution schemes in the UK and 10 times more in private equity, including in high growth businesses, compared to the UK.

“One of the key reasons for this is the much larger size of their funds, while our pensions landscape remains highly fragmented. That means many of our pension funds do not have the capacity to invest at the scale required.

“And more often than not, it is Canadian teachers and Australian professors reaping the rewards of investing in British productive assets through their pension schemes rather than British savers. That’s not good enough and we need to change that.” She then set out plans to create Canadian- and Australian-style “mega-funds”.

How do the two systems work?

Canada
The current Canadian pensions system can trace part of its intellectual heritage to Peter Drucker’s 1976 book The Unseen Revolution – of which he’d later remark “no book of mine was ever more on target when it was published, and no book of mine has been more totally ignored” – in which he tied the system down to three key principles.

Key principles:

Legitimacy, in the sense that the organisation’s only goal is to produce good pensions at a reasonable cost
Good governance, in the sense that the organisation has the oversight and management skills to get the job done
Sufficient scale to achieve the “reasonable cost” goal.

Around a decade later, then treasurer of Ontario, Robert Nixon, announced the creation of a taskforce to study how public sector management could be improved in his province – the findings from which were published in the In Whose Interest? report.

The report recommended pension funds have a clear mission, have a strong independence governance function, and be able to attract and retain the requisite talent to be successful.
These principles were then put into practice through the creation of the Ontario Teachers’ Pension Plan – replacing the Teachers’ Superannuation Fund.

It was a model which was subsequently copied by several other funds across Canada which – alongside the work done at federal government level – led to the creation of what has become unofficially known as the Maple 8.

In fact, of all the local government funds that make up the Maple 8, only Ontario’s three – Ontario Teachers’ Pension Plan, Healthcare of Ontario Pension Plan and the Ontario Municipal Employees Retirement System – are not crown or crown-like corporations, which are state-owned enterprises established through legislation.

Key to the Canadian model is its independent governance structure, receiving minimal political interference.

Like the LGPS in the UK, fund structures support the deployment of “patient capital” – particularly valuable in the infrastructure and private markets – with most of the funds now either fully funded or in surplus. Some also employ a collaborative investment model.

This involves funds partnering with other institutional investors to co-invest in large-scale complex assets – with the partnership allowing them to share the risk, access larger deals and maintain direct control.

While this collaborative model has seen funds invest in projects abroad, it has led to investment in infrastructure such as public transit systems, roads and bridges in Canada.

Australia
While interest in the Canadian system has been well-publicised in these discussions, the interest the UK government has taken in Australia’s superannuation system is worth noting.

Its origins can be dated back to the late 1910s when the State Superannuation Fund was established in New South Wales – becoming a model which other states would later follow.

Using a defined benefit (DB) model – one which promises a fixed pension regardless of investment performance – the states were responsible for funding shortfalls, creating long-term fiscal liabilities.

One issue with the model was that these funds were non-portable, meaning they were tied to long service and as such were used as a retention tool to hold onto staff rather than as a retirement income strategy.

By the 1980s, it became clear the DB model was placing a financial strain on state budgets and, tying in with the ongoing broader economic reforms being seen in the country, the decision was made to reform the system.

The reforms led to states closing their DB schemes to new entrants, with new public sector employees instead being enrolled in accumulation-style defined contribution schemes – reinforced by the federal Superannuation Guarantee in 1992.

Many state funds were also restructured into independent, professionally managed entities – evolving into either newly created or restructured public sector superannuation entities.

There was also a gradual shift towards greater investment in public infrastructure by these funds as they matured, driven by the pragmatic recognition that investment in products such as toll roads, energy networks and airports offered the stable, long-term returns that matched the liabilities of the funds.

Additionally, while there was no formal requirement for funds to invest in infrastructure, state governments began encouraging voluntary participation – doing so by creating frameworks for public-private partnerships (PPPs) and infrastructure investment platforms.

How have these models impacted their economies?

While both have had a transformative impact on their respective economies, this has been seen in largely contrasting ways. In Canada, these funds have evolved to become large, independently governed investment entities – enabling them to become major institutional investors both at home and abroad.

Beyond this, they helped to stabilise financial markets by acting as counter-cyclical investors – remaining active during downturns – while their global reputation has enhanced the country’s financial credibility.

As for Australia, the primary impact has been on the country’s nation-building agenda – heavily involved in public-private partnerships that have helped to deliver infrastructure.

These funds have also contributed to capital market development – providing a stable pool of domestic capital to support innovation, housing and small business finance. Their investments have also helped diversify the economy and reduce dependence on volatile sectors like mining.

All in all, Canada’s model has leveraged global diversification and governance to become a beacon of international investment leadership, while Australia’s has achieved a lot of success in national development programmes.

Why is the UK government interested in these two systems?

Core to how the government is looking to use the Australian and Canadian models as an example is via the consolidation of funds into large-scale “megafunds”.

By doing so, it feels that it can unlock better investment opportunities and can give the LGPS access to deals that are currently out of reach for some of the smaller schemes. This will also reduce costs through economies of scale.

The move is also expected to increase the professionalism seen in the sector. As in both Canada and Australia, whose funds are managed by independent, politically-neutral decision-makers, the UK appears to be moving toward more FCA-regulated asset managers as the key funding decisionmakers.

For UK PLC, perhaps the key aspect of these changes – and certainly the end goal for the creation of these “megafunds” – is purely and simply the fact that the government wants these funds to play a more active role in domestic economic development.

This has been made clear over the course of 2025, with the government arguing that the LGPS hasn’t reached its full potential when it comes to local and national development spending – the Pensions Investment Review arguing that funds should not only provide retirement security but also contribute to economic growth and productivity.

To achieve this, it has decided to reduce the number of pools from eight to six – with this consolidation expected to create funds of sufficient scale to invest directly in large infrastructure projects.

Its priority as part of this is not just about achieving economic returns but about place-based investment. This, in short, will turn the LGPS – it is hoped – into a key strategic investor in the future development of the UK.

Experts on the Canadian and Australian systems do, however, emphasise that implementation matters more than just size alone.

While consolidation should be beneficial, Dr Geoff Warren of The Conexus Institute says that success will depend on establishing a very solid foundation in terms of governance and capabilities, with potential alignment issues between beneficiaries and other stakeholders needing careful management during the merger process.

Will this work in the UK?

While the general direction of travel toward mimicking, at least in part, the Australian and Canadian models has received some criticism from the sector – there are reasons for thinking it could work, especially given how well these systems have worked for our fellow Commonwealth nations.

The primary one is that the fragmentation seen in the UK sector is remarkably similar to that which existed in both Canada and Australia – with both achieving success through consolidation of funds and aligning investment with long-term national interests.

Drawing from the Canadian experience, board independence and expertise are vital in achieving superior outcomes. Internal management of assets removes a layer of costs and becomes critically important in private markets where external fee structures can significantly impact returns.

However, emulating the Canadian model while preserving local accountability, according to the founding director emeritus of the International Centre for Pension Management, Keith Ambachtsheer, requires addressing a fundamental question: Who bears the risks of any funding decision?

Without understanding this, he added that pension boards cannot do their job.

The move to give pools more decision-making powers also formalises a consolidation process which has been underway ever since George Osborne first floated the idea of sovereign wealth funds.

Indeed, this consolidation will allow smaller funds to have better access to private markets at scale and at lower costs, as well as more strategic investment capacity across the board.

Beyond improved opportunities for the funds, as with Canada and Australia at the time, the UK faces a pressing need for long-term capital to fund infrastructure, housing, and regional development – something pension funds are in a unique position to take advantage of.

Both countries’ systems also show the benefits of the governance reforms the UK plans. The move from LGPS asset management to management by FCA-regulated entities mirrors their approach and is likely to improve performance while reducing risk.

Addressing concerns

There are, of course, concerns flagged by the reforms – solutions for which can already be found in the Canadian and Australian systems. There is, for example, an anxiety that encouraging LGPS funds to invest in local infrastructure could conflict with their legal duty to act in the best financial interest of members.

To address this, Canadian funds invest in domestic infrastructure only when it meets commercial return thresholds, while Australia created a pipeline of investable infrastructure projects that met the risk-return profiles of super funds – the latter of which is not too dissimilar to the UK government’s own infrastructure pipeline.

There have also been concerns around the speed at which the consolidation will be taking place – with disruption potentially creating governance confusion or alienating stakeholders.

In response to this, Canada’s reforms were both phased and consultative – giving clear timelines and including substantial stakeholder engagement. This allowed each fund to retain its identity while aligning under a unified governance and investment model.

Australia’s transition, meanwhile, occurred over decades, achieved through incremental reforms and strong communication. This, in turn, allowed employers, unions and members to adapt gradually.

The implementation challenge

Perhaps the biggest lesson from Canada’s success is that transformation requires fresh thinking.

As Ambachtsheer notes, it took outsiders to get the Canadian pension model off the ground – Ontario Teachers’ Pension Plan’s first Board Chair was the just-retired Governor of the Bank of Canada, while its first CEO was a senior executive from MetLife, both outsiders to the Canadian pensions world in the 1990s.

Overall, the UK’s strategic decision to emulate aspects of the proven Australian and Canadian pension systems represents a remarkable opportunity, but success will depend heavily on implementation.

Both the Canadian Maple 8 and Australian superannuation funds have demonstrated exceptional success through consolidated structures.

Crucially, they achieved this through robust governance frameworks and internal management capabilities rather than size alone.

The bold consolidation from eight pools to six megafunds will only succeed if it mirrors not just the scale but the governance excellence that established Canada and Australia as global pension investment leaders.

Done right, these reforms should ensure British savers finally reap substantial rewards while providing the patient capital essential for the UK’s infrastructure programme.

Further reading
Rachel Reeves targets Canada style pension model for UK