Andy Haldane, an economic adviser to Andy Burnham, has called for tax relief on pensions to be tied to UK investment. Pensions UK has said more UK investment should be achieved by creating better investment opportunities.  

Haldane is currently president of the British Chamber of Commerce. At the BCC’s annual conference on Thursday, the former Bank of England executive said the more than £50bn of pension tax relief and £10bn on ISA relief deliver a “very low return on investment” for the government.  

“Shifting them towards investment in UK companies would leave investment choices in owners’ hands, while boosting significantly the returns on these investments in terms of UK business growth, jobs and productivity,” he said. 

He sought to justify the proposal to link tax relief to investment in UK companies claiming the UK’s was the only pension system in the world that did not have a home bias, that UK dividend tax credits did something similar, and claiming the public would support the move. 

A proposal like this could put the next government on a collision course with the pensions industry.

Zoe Alexander, executive director of policy and advocacy at Pensions UK, argued that pension tax relief exists to support long-term saving and better retirement outcomes. 

“Tying it to UK allocations would distort investment decisions and risk saver returns,” she said. 

Alexander pointed out that UK pension schemes are already investing in the UK where they think it is in members’ interest. The Pensions Policy Institute estimated that in 2023, about 18% of £3tn pension assets was invested in UK business, including listed equities (5%), corporate bonds (7%) and private equity and other alternatives (6%).

"If we want more pension investment in the UK, the answer is to create better opportunities, not to direct capital through the tax system,” she said. 

Alexander also disagreed with Haldane’s assertion that UK investments would improve returns, saying this confidence was not supported even by the government’s own analysis. That the public would support such a policy is also not clear, she suggested: “Evidence on saver preferences in relation to where investments are made is mixed and inconclusive.” 

Haldane’s proposal comes just two months after the current pensions minister was forced to allow trustees to seek exemptions from government investment mandation on the basis of fiduciary duty, should the government ever make use of this power. Making members’ interests the test for exemption is seen by many in the industry as a win over the government and came on top of other significant concessions by Torsten Bell around the scope of these powers. 

Mandating investments into private assets, half of them in the UK, had been resisted by the House of Lords. However, one of the peers who was instrumental in weakening the mandation clause is now taking the view that pension tax relief should be contingent on UK investment. 

Baroness Ros Altmann has proposed that 25% of pension contributions should be invested in UK growth assets, which she said would be “incentivisation, not mandation”. 

The Conservative former pensions minister also said local authorities with large pension fund surpluses should take contribution holidays and use the money to improve local services. 

“It is time for revolution, not evolution, using pension funds to rebuild Britain,” she said.