UK pensions should be invested in UK companies, industry group says

By David Milliken

LONDON, June 25 (Reuters) - Britons' pension savings should be invested by default in British companies and the government should rethink tax relief where savings are invested internationally, Andy Haldane, the president of the British Chambers of Commerce, said on Thursday.

Haldane served as the Bank of England's chief economist from 2014 to 2021 and more recently is reported to have been advising former Greater Manchester Mayor Andy Burnham who is expected to succeed Keir Starmer as Britain's prime minister next month.

British startups often struggle to access capital to grow in the same way as U.S. tech companies. Where they do, they are sometimes bought out by foreign companies, which Haldane said damaged Britain's longer-term growth prospects.

"The UK should remain open to FDI (foreign direct investment) but we simply cannot afford to allow the continuation of overseas stripping of our greatest growth asset – innovative businesses – on this scale. Doing so is tantamount to willingly sacrificing growth and jobs," he told the BCC's annual conference in London.

To replace overseas finance, Haldane suggested that British occupational pension schemes should by default be invested in British equities rather than the global stock indices which are commonly used and are dominated by U.S. companies.

"This is not about constraining choices. This is about correcting that home bias in how that huge pot of money is currently allocated," he said.

This type of proposal has previously been met with criticism from industry experts, who say forcing pension funds to invest domestically would harm savers by concentrating risk and delivering lower returns, while failing to address why British companies struggle to attract investment in the first place.

Haldane also described the £60 billion ($79 billion) a year of tax relief on pensions and other savings – a sum greater than Britain's defence budget – as offering "a spectacularly low return on investment for the UK government" where savers invested it in overseas companies or foreign government bonds.

Britain is unusual in the extent to which its savers invest internationally, which helps them diversify country-specific risk and get exposure to a wider range of industries.

Finance minister Rachel Reeves – whose future is uncertain if Burnham becomes prime minister – has already leant on pension funds to finance long-term infrastructure projects.

($1 = 0.7587 pounds)

(Reporting by David Milliken, editing by Andy Bruce)