Over the past few weeks, headlines have resurfaced around an old political temptation: using pension assets to “support the national economy”.
A recent Telegraph article drew attention to developments in Canada, where policymakers have encouraged the country’s large pension funds to invest more at home - part of a broader push for economic self-reliance.
The warning for Britain, the argument goes, is that Rachel Reeves is attempting something similar: nudging or mandating pension schemes to allocate more capital into UK equities, infrastructure, and domestic private markets.
At first glance, it sounds plausible. Pension funds are enormous pools of money and Governments are hungry for investment. Why not channel retirement savings into national renewal?
The problem is that this thinking has a long and rather poor track record.
The trouble with “pension patriotism”
The fundamental purpose of a pension fund is simple - to provide the best possible retirement outcomes for savers.
That requires diversification, discipline, and the freedom to invest wherever opportunities are most attractive.
Once politicians begin treating pension assets as a convenient tool of industrial strategy, the line between investment and policy spending starts to blur.
The Telegraph quotes Canadian experts warning that mandated domestic allocations can become a form of “crony capitalism”, where capital is directed toward politically favoured projects rather than economically viable ones.
In other words, pension savers quietly become the funding source for the priorities of the day.
But the bigger story is older - and more damaging
However, there is an even deeper issue being ignored. The most consequential distortion in pension investing over the past 20 years was not “nationalism”. It was regulation.
In the UK, a combination of accounting rules and ever-tougher funding requirements likely pushed many UK defined benefit pension schemes into what became a one-way trade:
- selling growth assets (equities)
- buying “safe” bonds.
This happened at exactly the wrong moment. Equity markets went on to boom, while schemes reduced exposure, before bond yields collapsed, meaning prospective returns were paltry for years.
And when interest rates finally rose, those supposedly “safe” bonds promptly fell 20 - 30% in value.
Why it matters now
Today’s debate about pension funds investing in Britain should not ignore this history.
When politicians talk about “unlocking pension capital”, we should ask:
- Is this about improving outcomes for savers?
- Or is it about finding a captive source of funding for state ambitions?
The lesson from the past two decades is that forced frameworks, even when well-intentioned, can produce systematically poor outcomes.
Pensions work best when they are treated as long-term investment vehicles, not instruments of economic policy.
What does this mean for Town Close clients?
For most private investors, the good news is simple. There is no realistic route by which individuals will be compelled into “patriotic allocations”. Capital markets do not work that way.
Our approach remains unchanged:
- global diversification
- evidence-based investing
- focus on real long-term returns
- scepticism toward political fashions
If Britain wishes to attract more investment, the best route is not coercion.
It is to improve the conditions under which businesses succeed - and capital will arrive voluntarily, in far greater quantity than any mandated target could achieve.