Kyle will force pension funds home
Peter Kyle threatens to force pension funds to invest in Britain, after 25 years in which £1.9trn of workers' retirement savings left the country.
British workers have watched £1.9 trillion of their pension savings leave the country since 2000, while fund managers chased returns abroad. Business Secretary Peter Kyle now says he will force pension funds to invest in Britain by law if they will not do it voluntarily.
Kyle made the threat to the Guardian on 9 July, speaking at Lloyds Banking Group’s London headquarters. Asset managers, he said, should feel “a patriotic duty in making Britain a success” and need to “get off their high horses.” On mandation itself: “I don’t think mandation is ideal in any circumstances. But I’ll use it if I have to, because I’m in a rush.”
The money he is talking about is not the City’s. It is the deferred wages of cleaners, nurses and shop workers, auto-enrolled into schemes they never chose. Twenty-five years ago those schemes held more than half their assets in UK shares. By 2024 that figure had fallen to 4.4%, an all-time low.
Pension funds that stopped investing in Britain
In 1997, UK pension funds held 73% of their assets in equities. Today it is 34%, with 43% in bonds, a shift regulation and the wind-down of final-salary schemes both drove. Canadian pension schemes now put roughly four times more into infrastructure than their UK counterparts; Australian schemes put in three times more, and ten times more into private equity. Britain is close to alone among comparable countries in having no home bias for its own savers’ money.
The government’s own fix has already been narrowed by the industry it targets. A “backstop” power in the Pension Schemes Bill would let ministers mandate investment, but it cannot be used before 2028, is capped at 5% of default-fund assets, and expires by 2035 if ever used. The Lords rejected earlier, tougher versions of the clause three times before this one survived. Richard Stone, chief executive of the Association of Investment Companies, called the result “common sense.” Common sense, in this telling, is fund managers keeping the freedom to carry on doing what they have done for 25 years.
Kyle’s underlying diagnosis is fair: a generation of capital flight has cost Britain. But forcing funds to buy the same domestic assets at once can inflate their price and dent the very returns savers rely on, a risk the fiduciary-duty argument is not simply a City excuse to avoid. Andy Haldane, now advising incoming prime minister Andy Burnham, has proposed the sharper alternative: tie the £50bn a year in pension tax relief, currently skewed toward higher earners, to UK investment instead of threatening a law nobody can enforce for two years.
Kyle is pitching to keep his job under Burnham. The backstop he is brandishing cannot fire a shot until 2028. The £1.9 trillion is already gone.
