Rachel Reeves’s plans to combine smaller pension funds into a group of giant “megafunds” will make workers just £6,000 better off by the time they retire, The Telegraph understands.

In an announcement expected later this week, the Chancellor will lay out details of new rules to encourage consolidation in the pension industry.

The aim is to emulate the success of nations, including Australia and Canada, which have a smaller number of very large pension funds. The scale means lower fees for members, saving an estimated £1bn a year across the industry, and allows fund managers to take greater risks that can deliver higher returns.

Local authority schemes are expected to form part of the restructuring .

There are currently around 1,000 defined contribution pension schemes in operation. After the changes, there are expected to be fewer than 20 megafunds.

The shake-up forms part of Ms Reeves’s “big bang of reforms”. In November, the Chancellor said the pension plans would “unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off”.

However, it will take decades to feel some of the benefits of the changes. An average man aged 22, starting out in their career now, would currently expect to save £163,600 into his defined-contribution pension pot by the time he looks to retire in more than four decades’ time.

After the reforms, lower costs charged by the bigger pension funds – saving 0.06 percentage points – would mean the same man is estimated to save £2,500 by the time he seeks to live from the pot.

As larger funds can diversify their investments and, hopefully, earn higher returns, he should gain another £3,300 over the decades, resulting in a total pot worth £169,500, a boost of close to £6,000, or a little under 4pc.

This would come on top of the £11,000 boost which the Government expects the average pension saver will receive from other reforms, which seek to improve value for money and encourage funds to put more money into assets such as unlisted equities.

The combination of policies means, if the estimates are correct, a typical worker would reach retirement with an extra £17,000 of savings.

‘No guarantee’ of better returns

However, critics have argued that the reforms are not guaranteed to result in better returns for pension savers.

Earlier this year, senior bank bosses on the practitioners’ panel, convened under the auspices of the Financial Conduct Authority, warned there was a risk of creating a “one-size-fits-all that does not meet the needs of individuals”.