UK community sector retirement fund funds are not large enough to generate excellent returns for British savers, Chancellor Rachel Reeves has told the BBC.

Her comments arrive as the government reveals plans to merge the UK’s local government retirement fund scheme, a throng of funds which together manage £354bn in investments, into a handful of “retirement fund megafunds”.

The plans form part of what the government has said are the “biggest retirement fund reforms in decades”.

It claims this will boost financing in the UK, but critics declare the measures “could put savers’ money at hazard”.

Reeves told the BBC ahead of her annual Mansion House talk to investors that she wants the UK’s retirement fund schemes to be more like Canada and Australia.

In those countries, the pensions of local government workers, such as teachers and civil servants, are pooled into a handful of funds which are able to make large investments around the globe.

“They probably have the best retirement fund funds anywhere in the globe,” Reeves said.

The retirement fund reform plans are the cornerstone of the address, which comes after many businesses have criticised the rise in employer National Insurance contributions in the strategy.

She told the BBC that she is “not immune to those criticisms, but it was essential to boost taxes” to get the community finances in to shape and “properly financing” community services.

The government plans to merge the 86 council retirement fund funds – which represent 6.5 million pensions and are run by local government officials – into “megafunds” run by financing managers.

These bigger funds would also be required to “specific a target for the pool’s financing in their local economy”.

The government also wants to set a minimum size limit on defined contribution schemes, which manage around £800bn of investments, to inspire the combining of the around 60 different multi-employer schemes.

The government says its changes could “unlock” £80bn worth of financing into the UK in things like vigor infrastructure, tech commence-ups, and community services.

“Our retirement fund funds in Britain are too tiny to be making the investments that get a excellent profitability for people saving for superannuation and to assist our economy to develop,” Reeves said.

She added it made “no sense at all” that Canadian teachers and Australian professors were more likely to be invested in many long term UK assets than savers in Britain.

However, critics declare the plans could put savers’ money at hazard.

“Conflating a government objective of driving financing in the UK and people’s superannuation outcomes brings a danger because the risks are all taken with members’ money,” said Tom Selby, director of community policy at financing platform AJ Bell.

He said the current structure encourages trustees to deliver “the highest feasible income in superannuation for members” rather than focus on UK-wide market advancement.

This sometimes means investing in things like US stocks and shunning the UK financing which the government is keen on.

And though bigger funds can cruel bigger rewards, they can also cruel bigger risks, with Canadian retirement fund financing the Ontario Municipal Employees superannuation structure being the largest investor in troubled Thames Water.

Others declare there is a hazard that larger funds battle to discover enough large UK projects to invest in.

“Large funds require substantial, reliable projects to generate returns, but the economy may battle to propose enough of these opportunities, especially in the infrastructure sector,” said Jon Greer, head of superannuation policy at affluence manager Quilter.

He added that if “too much money chases too few viable investments” funds might be forced into “riskier” investments.

Shadow chancellor Mel Stride said the Conservatives “will be looking closely at the specific of what Rachel Reeves sets out – particularly regarding the mandating of where investments are to be made”.