Pension funds around the world are coming under increasing pressure to invest more in their own economies, prompting warnings from some in the industry that this could harm retirement savers.
The UK, Canada, the Netherlands and Germany are among countries that have spotted an opportunity to redirect large and growing pension savings pots towards domestic investment to try to kick-start economic growth and funnel cash to sectors such as technology, defence and green energy.
But some pension fund industry executives fear such moves could hit investment returns and disincentivise saving.
“The money in people’s pensions should not be a plaything of governments,” said Sir Steve Webb, partner at consultancy LCP and former pensions minister in the UK coalition government.
“It is already hard enough to get people to lock money away and save for the long-term, and confidence in pensions could be seriously undermined if savers believe that their best long-term interests are no longer the top priority of their pension scheme,” said Webb.
Those in charge of pension schemes or companies that pay into schemes in particular worry that being pressured or forced to invest in certain assets could compromise their duty to maximise returns for savers.
Charlie Nunn, chief executive of Lloyds Banking Group — which owns Scottish Widows, one of the UK’s biggest pension providers — said last year that compelling pension funds to allocate to certain assets would be “a form of capital control” and a “difficult slope for an economy that believes it is an open economy”.
The UK has been one of the most active countries in trying to channel its pension savings domestically this year, using a number of reforms to consolidate its pension system. Chancellor Rachel Reeves hopes the moves will push some £80bn into “productive assets” such as private companies and infrastructure, and she expects half of this to flow to the UK.
Ministers have also co-ordinated a voluntary agreement between 17 of the country’s largest defined contribution pension providers to invest at least 5 per cent of their assets in UK private markets by the end of the decade.
To hold them to this pledge, the government is introducing legislation this year to enable regulators to force a minimum amount of investment into private assets, should pension funds not honour their commitment.
However, a director at one of the UK’s largest professional trustee firms said he always sought investments on merit rather than the wishes of the government. If pension schemes were forced to invest in certain assets it would “put trustees in a very difficult position”, given their fiduciary duty to act in the best interests of their scheme members, he said.
The global drive for more domestic investment could “create competing pressures” of balancing savers’ best interests with national priorities, said Tim Jenkins, partner at consultancy Mercer.
Industry figures expect governments to focus more on domestic investment to shore up their energy and defence sectors amid rising uncertainty over US foreign policy following the capture of Venezuelan leader Nicolás Maduro.
Energy independence and security have been “chronically underinvested in the UK and Europe for decades”, said Mike Eakins, chief investment officer of pensions firm Phoenix Group. “There will definitely be a desire of policymakers for private pension capital to invest more domestically.”
Canadian Prime Minister Mark Carney wants to encourage investors such as pension funds to back national infrastructure projects © Dave Chan/AFP via Getty Images
In Canada, Prime Minister Mark Carney has launched a “Buy Canada” campaign that prioritises local products for procurement with the aim of making it “the strongest economy in the G7”.
In December 2024, Ottawa said it would remove its 30 per cent cap on owning Canadian entities. The country has also set up a so-called Major Projects Office to fast-track national infrastructure projects and reduce the uncertainty around such programmes, as a way of encouraging investors such as pension funds.
The Canada Pension Plan Investment Board, the country’s largest fund with C$714bn (US$516bn) of assets, revealed in May that its total allocation to Canadian assets dropped to 12 per cent this year from 14 per cent two years earlier.
John Graham, chief executive of CPPIB, told the Financial Times he was “super encouraged” by what Carney was doing to create large-scale investable projects, but added that there was currently an “opportunity deficit” and the fund would invest more in Canada “if we see opportunities”.
“We have a mandate to maximise return without undue risk of loss,” he said, adding that his dialogue with the government so far had been constructive around how to improve opportunities without undue pressure to invest.
The Netherlands — Europe’s largest pension system with more than €1.8tn of assets — is also encouraging its pension giants to invest more in Dutch infrastructure and social housing.
Inge van den Doel, managing director of the third largest Dutch pension fund Pensioenfonds Metaal en Techniek, said she had a “constructive dialogue” with the Dutch government and “welcomed” their encouragement. But she added the fund’s “foremost responsibility” was to secure a good pension for the scheme’s participants.
Europe more broadly is trying to channel more of its savings industry into its sluggish economy, and in March last year launched the savings and investments union, which aims to drive more into productive investments.
The move came after a report by former European Central Bank president Mario Draghi in 2024, which said the EU needed to invest around €800bn more a year to modernise its industry, strengthen its defence, support the energy transition and compete with the US and China.
Germany and France have pension systems that are largely unfunded — or pay-as-you-go — with low provision of funded workplace and personal pensions.
Germany is trying to change this by encouraging saving into equity-based private pensions without a guarantee. This “could bring a lot of money into the capital market”, said Sebastian Külps, head of Germany and northern Europe at fund firm Vanguard.