Reform UK Plans to Roll Pensions Into 'Sovereign Wealth Fund'

Reform UK has unveiled a proposal to merge local government pension schemes into a British Sovereign Wealth Fund, valued at up to £575 billion. The plan aims to boost investment in UK companies, infrastructure, and housing by redirecting pension assets. Reform's business spokesperson, Richard Tice, is set to announce the proposal in a speech on Tuesday.

The current UK Local Government Pension Scheme has around 6.7 million members and a market value of £400 billion. Reform's proposal includes shifting new hires to defined contribution schemes and redirecting investments to UK assets. This move would see an additional £100 billion invested in UK-listed shares.

The government has previously discussed merging local pension schemes but has not sought to end guaranteed benefits. Reform's plan, however, would alter the investment strategy and structure of these schemes. Critics argue that such a move could destabilize public services and worsen recruitment challenges.

Why Did This Happen?

Reform UK, a right-wing political party, is aiming to position itself as a viable alternative to traditional parties. The party has been leading in polls and is attempting to craft policies that address economic growth ahead of the 2029 general election .

Richard Tice argues that other countries like Norway and Singapore have used sovereign wealth funds to drive economic prosperity. He claims that a similar approach in the UK would yield long-term benefits by focusing on domestic investments .

How Did Markets React?

Returns on UK shares have been below those of US shares in recent decades, though they have improved in the current year. Reform's plan to increase investments in UK markets to 25% could have significant implications for asset allocations. However, the Bank of England has expressed concerns about mandating such investments .

The proposal has been criticized for diverging from the nature of traditional sovereign wealth funds. Experts note that local pension schemes are obligated to pay guaranteed pensions, unlike sovereign funds that can take more risks. Pensions expert John Ralfe highlighted this distinction, calling the comparison to funds in Norway and the Gulf states inaccurate .