Reform’s flagship plans to force multibillion pound local government pension funds to invest in the UK risks backfiring and pushing up council tax bills, experts have warned.
Nigel Farage’s party wants to merge the schemes to create a single British Sovereign Wealth Fund of up to £575bn.
Richard Tice, the party’s business spokesman, set out a vision of a “fund patriotically backing British companies, buying and promoting British product… (with a) strategic UK growth mandate backing Britain all the way.”
Across England and Wales there are 86 local government pension funds, with money paid in mainly by council workers, and Mr Tice said the move could be an “absolute game changer”.
“This could be one of our greatest legacies that Reform essentially brings to the United Kingdom. It could drive prosperity, it could drive growth,” he said in a speech in Birmingham.
But James Alexander, CEO of UK Sustainable Investment and Finance Association (UKSIF) said: “Proposals to force pension schemes to invest in the UK run the risk of distorting markets and creating asset bubbles.
“They could also lead to lower returns for savers, at a time when shortfalls in retirement pots have left a whole generation facing a later-life income crisis.”
Tom Selby, director of public policy at investment platform AJ Bell, said Labour was already looking to harness assets held in local authority pensions to drive investment in ‘UK plc’, but had stopped short of mandating what the schemes invest in.
“By the sounds of it Tice is intent on bringing mandation back on the table… That is clearly appealing for any politician scrabbling for ways to drive long-term economic growth but raises questions about the risks being taken with other people’s money,” he said.
He added: “Ultimately these schemes need to have enough assets to pay members’ pensions and if the strategy goes wrong, it will be the members who are left paying the price.”
Pensions expert and former pensions minister Steve Webb told the Independent that council taxpayers could also be left on the hook. “The first question you've got to ask is, why wouldn't these pension schemes be doing this anyway? And they've obviously decided they don't think it's in the members’ best interests,” he said.
He also warned that with defined benefit pensions, as many local government pensions are: “The amount you have to pay out doesn't change. You've still got to pay the pensions you've promised to pay, but you've got less money coming in because you've lost returns… So somebody has to pay fill the gap.
“Well, who is the employer here? It's councils. Where do councils get money from? Well, they're not going to get money from central government to fill the gap - so it's going to come from Council taxpayers. Basically, the risk is that what this will do is put council tax bills up,” Mr Webb, who is now a partner with pensions consultrants LCP, said.
Mr Tice has suggested new employees of councils should also be told that they have to join a new defined contribution scheme instead.
But Mr Webb cautioned that there was "no such thing as a free lunch" and it was already hard to recruit for many council jobs, leaving the possibility that if pensions were made less generous local authorities would have to offer to pay staff more upfront to fill positions. Reform suggests the new fund would help the national interest by investing in areas such as defence, steel and energy.
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