Pension warning as tax breaks could be targeted in Autumn Budget unless UK investment rises

Baroness Altmann said: "Why should the government keep funding £70bn a year for pension fund managers to invest in other economies and not our own?"

The former minister argued that pension fund managers have "lost sight of the scale of taxpayer contributions they benefit from each year", noting that the £70bn figure exceeds the country's entire defence budget of around £52bn and policing budget of £18bn.

Government figures reveal that UK pension allocations have plummeted from 50 per cent a decade ago to just 20 per cent currently, with only 8 per cent invested in equities.

The majority of pension funds are now invested overseas, particularly in major US funds with holdings in technology giants including Amazon, Microsoft and Nvidia.

This dramatic shift away from domestic investments has been identified as a key factor behind the London stock market's struggles.

A Government report from November found that UK workplace defined contribution schemes invest significantly less domestically than their international counterparts.

Canadian schemes allocate 22 per cent to domestic holdings, whilst New Zealand funds invest 42 per cent and Australian schemes maintain 45 per cent in their home markets.

Altmann has proposed that pension funds should invest at least 25 per cent of all new contributions into UK growth assets as a condition for receiving tax relief.

"Taxpayers should not be helping to increase pension managers' funds under management, and facilitating overseas investment, especially when the UK urgently requires increased long-term investment to boost growth," she said.

The former minister stressed this was "incentivisation, not mandation", explaining that funds would choose their own UK investments, including listed equities, private equity, start-ups, real assets and housing.

"Any pension fund managers or trustees who don't want taxpayer money added to their pension contributions, can invest 100% overseas, no problem," Altmann said.

She argued the proposal could create a "virtuous circle" boosting domestic investment at no additional cost to the government.

The scale of taxpayer support for pension schemes dwarfs other major Government expenditures, according to Baroness Altmann's analysis.

She highlighted that the £70billion annual figure is "far larger than the country's entire defence budget (around £52billion) and policing (£18billion)".

"How can it be good value for taxpayers, to see such huge sums invested overseas and not here?" the former pensions minister questioned.

Altmann argued that pension fund managers appear to have overlooked the substantial public funding they receive each year.

"I don't understand why our pension funds think it is perfectly fine to take billions of pounds of taxpayer money and do nothing to benefit the UK economy with it," she said.

Recent developments underscore the continuing trend of pension funds reducing UK exposure. Scottish Widows announced last week it would slash London-listed shares in its highest growth portfolio from 12 per cent to just 3 per cent.

The lack of domestic pension fund investment has been identified as a contributing factor to the undervaluation of many London-listed companies.

Altmann warned that tax reliefs are "obviously under threat if things carry on as they are", with speculation mounting that Chancellor Rachel Reeves could target pension tax breaks in the autumn Budget.

"It seems to me that asking for just a quarter of the new money to be invested in our great British businesses and growth assets is not exactly unreasonable," she said.