Treasury plans to combine pension funds into larger pots for greater returns will not be affected by the tariff war fallout
The Government will press ahead with plans to create pension “megafunds” to invest in the economy despite the current market turmoil, The i Paper understands.
Rachel Reeves has previously promised to combine dozens of pension funds controlled by local councils and other public-sector bodies into a much smaller number of large pots.
She has been warned that using these funds to drive up investment in British firms could end up harming pensioners by lowering the returns on their savings.
And chaos in financial markets since Donald Trump launched his tariffs war last week has put off investors, with industry insiders reporting that savers have rushed to withdraw cash as they have seen valuations fall.
But Treasury sources said the Chancellor was not going to back down on her proposal to create the new megafunds with an emphasis on investing within the UK.
Treasury officials believe that despite the short-term volatility, putting money into equities and other forms of long-term investment remains the best way to save for retirement over a time frame of decades.
The larger funds will be expected to invest in a wide range of different instruments, including infrastructure projects as well as stocks and shares. This will make them better able to absorb short-term shocks while delivering maximum returns in the long run, sources insisted.
An update on the next steps for the policy, including a time frame for the megafunds to be formally created, is expected in the coming months.
At the Spring Statement last month, the Chancellor said: “We are increasing investment with reforms to our pension system and a new national wealth fund, and tearing down regulatory barriers in every sector of our economy. That is a serious plan for growth. That is a serious plan to improve living standards. That is a serious plan to renew our country.”
Reeves and Sir Keir Starmer have claimed that their response to Trump’s trade war will involve doubling down on their existing growth plans to put the UK economy in a stronger position to weather global volatility.
The Chancellor’s new rules will set a new minimum size for “defined contribution” pension funds – those which pay out on the basis of how much individual savers have put in the return on those assets, as opposed to “defined benefit” schemes which pay a set annual amount regardless of how much is in the relevant fund.
It will also wrap the 86 separate funds which form part of the local government pension scheme into a smaller number of pots which will each have more leeway to make big investments.
Some major UK assets are owned by foreign pension funds, including those based in California and the US, which are much bigger than their British equivalents.
But a number of economic experts have warned against using pension savings to try and drive other policy goals such as higher investment in infrastructure.
Tom Selby of AJ Bell recently told The i Paper: “The desire to get more pension money invested in the UK is understandable, but my overarching concern is that the needs of the saver, whose money is ultimately going to be risked, will be forgotten about.”
