Last week saw the publication of the Pension Investment Review which outlines government’s ambitious plans to boost growth both to the UK economy and improve people’s pensions through a number of mega funds.

The idea behind it is that the UK defined contribution pension market is too fragmented, which doesn’t deliver the best value to members. To combat this, the government wants to make sure pension funds are big enough to provide economies of scale.

Its plan is that any pension provider offering auto-enrolment workplace pensions to a number of employers must have at least one big “default” arrangement. The default is the fund you end up in if you don’t make any investment decisions. The minimum size of this fund is to be £25bn. This will apply from 2030.

Read more: Should people keep working until later in life?

However, there is some wiggle room in that schemes worth over £10bn that are unable to reach the minimum size requirement by 2030 can continue to operate, as long as they demonstrate a clear plan to reach £25bn by 2035.

The view is that this consolidation will help schemes become more efficient and drive down costs. These larger funds will also boost investment in asset classes such as infrastructure which have up until now only really been available to the largest investors — like the mammoth schemes seen in Canada and Australia.

The government believes investing in a wider range of assets will potentially bring higher returns to UK pension savers and a boost to the economy.

The numbers quoted in the report are impressive, quoting total savings of around £1bn per year through economies of scale.

The government estimates the average earner could get a £6,000 boost to their pension pots at retirement from consolidation alone.

Financial services company Hargreaves Lansdown believes that while scale is important in delivering better pension outcomes, it must not come at the cost of reducing competition, member choice and much needed innovation.

Read more: What Pope Leo and Warren Buffett’s examples show us about working and retiring

This has the ability to really drive-up member engagement with their pensions, improve decision making and boost retirement incomes. There’s still a lot of detail to be fleshed out and it will be interesting to see how this will be supported.

If the market is to thrive, there needs to be space for smaller, innovative providers. It’s a lesson learned in the retail banking market where competition from smaller challenger banks has put pressure on larger players to improve user experience and product offerings.

There’s a lot going on in pensions right now. For instance, the pensions dashboard continues to progress and there are also changes afoot that will enable providers to deliver more assistance to scheme members with personalised recommendations — something they haven’t been able to do before.

These changes also have the potential to be a game changer in terms of engaging scheme members and helping them make better decisions. The push for scale shouldn’t stifle the innovation that can flow from these regulatory changes.

Read more:

Download the Yahoo Finance app, available for Apple and Android.