- Andy Haldane has called for UK pension funds to invest in British companies by default instead of overseas markets.
- He also urged the Government to review pension tax relief where savings are invested abroad.
- Industry experts argue such a move could reduce diversification and lower returns for savers.
UK pension funds should invest in British companies by default to help drive economic growth and reduce reliance on overseas investors, according to Andy Haldane, president of the British Chambers of Commerce (BCC).
Speaking at the BCC's annual conference in London, the former Bank of England chief economist argued that the UK's pension system should play a bigger role in financing home-grown businesses. He also called on the Government to review how pension tax relief is applied when retirement savings are invested in overseas assets.
Haldane said Britain continues to produce innovative companies but too many struggle to secure the funding they need to grow, leaving them vulnerable to overseas takeovers.
A bigger role for British pension money
Haldane suggested occupational pension schemes should automatically allocate more of their investments to UK-listed companies instead of global stock market indices, which are heavily weighted towards US firms.
He reportedly said the proposal was not about restricting investors' choices but about changing the way pension savings are allocated to better support the domestic economy.
The UK should remain open to foreign direct investment, he added, but warned that the continued sale of fast-growing British businesses to overseas buyers could weaken the country's long-term economic prospects and cost jobs.
Haldane also questioned whether the Government receives sufficient value from the estimated £60 billion it provides each year in tax relief on pensions and other savings when much of that money is invested in overseas companies or foreign government bonds. He reportedly described the current system as offering "a spectacularly low return on investment" for the Government.
Debate over risk and returns
The proposal is likely to revive a long-running debate over how pension savings should be invested.
Supporters argue that directing more retirement savings into British businesses could improve access to growth capital, particularly for start-ups and innovative companies that often struggle to attract long-term investment.
Critics, however, say requiring pension funds to invest more heavily in domestic assets could increase investment risk by reducing international diversification. They also argue that the UK's challenge lies less in a shortage of capital than in making British companies more attractive to investors.
The Government has already encouraged pension funds to invest more in long-term UK infrastructure projects as part of wider efforts to stimulate economic growth.
Haldane served as the Bank of England's chief economist between 2014 and 2021 and has recently been reported to be advising former Greater Manchester Mayor Andy Burnham, who is widely expected to become Britain's next Prime Minister.
