The £9bn Tyne & Wear Pension Fund and the £1.4bn Northumberland County Council Pension Fund are set to merge following a consultation by the government.
The move comes after the two authorities responsible for the funds - Northumberland County Council and South Tyneside Council - submitted a joint application for a merger of the schemes to the Ministry of Housing, Communities and Local Government, which then launched a consultation into the issue.
In their application, the two next-door authorities said the two schemes have very similar investment and funding strategies and had been collaborating for some time - operating a shared pensions administration service for the past two years - and noted a full merger was the "next logical step".
They added the larger size of the combined fund should result in lower administration costs per member and participating employers paying lower employer contribution rates in the long term - noting they expected the long-term administration and governance savings of the merger would be around 10- 12% per annum.
Northumberland and South Tyneside also said the merger would enable Northumberland's assets to transfer to the Border to Coast Pensions Partnership (BCPP) at a lower cost than would have been the case without merger.
Commenting on the merger, Spence & Partners head of charity and public sector services David Davison said: "With the move to pooled investment funds this had to be the logical next step. There are too many small LGPS in the UK who cannot benefit from the economies of scale of larger funds so are not serving the taxpayer, or indeed their members, as well as they might.
"Transition costs need to be effectively managed to ensure the maximum value is derived. This decision is to be greatly welcomed and will hopefully be the start of many more similar arrangements adding value and consistency in the sector."
The government's response to the consultation and background to the merger can be read here.
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