UK reveals bill to block capital outflow
(MENAFN)
The UK government has introduced a bold and contentious bill designed to steer pension fund investments back into the domestic economy amid mounting financial pressures and geopolitical tensions.
The UK government has introduced a bold and contentious bill designed to steer pension fund investments back into the domestic economy amid mounting financial pressures and geopolitical tensions.
The legislation proposes merging existing pension schemes into large “megafunds” with a minimum size of £25 billion by 2030. The government claims the move will stimulate investment in British infrastructure, energy projects, and job creation, while improving long-term returns for workers. Since 2012, the proportion of UK pension fund investments in British firms has declined sharply—from over 50% to just 20% in 2023—as fund managers increasingly look overseas for better returns.
Chancellor Rachel Reeves argues the reforms will revitalize strategic sectors like clean energy and benefit pensioners. However, critics from within the financial sector are pushing back. Aviva CEO Amanda Blanc criticized the plan as overly forceful, warning that it may conflict with pension trustees’ legal responsibility to prioritize the best returns for savers.
The proposal comes at a difficult time for the Labour government, which is struggling with sagging public support, escalating national debt, and growing political competition from Reform UK, led by Nigel Farage. Labour has lost more than 12 percentage points in approval since its victory in the July 2024 election—the steepest post-election drop in four decades.
The UK’s national debt now exceeds 95% of GDP, its highest level since the 1960s. Economists cite pandemic-related spending, rising energy costs, and persistent borrowing as key drivers. At the same time, the government plans to raise defense spending to 2.5% of GDP by 2027 to meet NATO targets, amid pressure from Washington and ongoing support for Ukraine.
UK pension funds have historically invested heavily in U.S. markets, especially in major tech firms like Apple, Amazon, and Microsoft. But recent developments—such as the reintroduction of tariffs under U.S. President Donald Trump and divergent policies on Ukraine—have led fund managers to reevaluate their exposure to American assets.
The new pension reform legislation is expected to be submitted to Parliament before the summer recess.
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