Andy Haldane, the former chief economist of the Bank of England, has proposed a radical overhaul of the UK pension system: tax relief should only be available to savers who invest their pension pots in UK assets. The proposal, outlined in a report for the Tony Blair Institute, aims to channel more capital into the British economy and address chronic underinvestment.
A plan to redirect pension capital
Under current rules, pension contributions benefit from tax relief regardless of where the money is invested. Haldane argues this is a missed opportunity. By restricting tax relief to investments in UK equities, bonds, infrastructure, and other domestic assets, the government could unlock billions of pounds for productive use. According to Haldane, UK pension funds hold over £3 trillion in assets, but a significant portion is invested overseas.
Boosting domestic capital markets
The proposal is designed to strengthen UK capital markets, which have lagged behind those in the US and other economies. Haldane noted that British companies often struggle to raise capital for expansion, while pension savers miss out on the growth of the UK economy. “Making tax relief conditional on UK investment would align the interests of savers with the national economy,” he said.
Potential impact and criticism
The plan could redirect an estimated £1 trillion into UK assets over a decade, according to Haldane's calculations. However, critics warn it could reduce diversification and expose savers to higher risk. They also argue it might be seen as a form of financial protectionism. Haldane acknowledges these concerns but insists the benefits outweigh the drawbacks. “This is about ensuring that the tax relief we grant is used to support the economy that funds it,” he said.
Political and industry reactions
The proposal has sparked debate among policymakers and the financial industry. Some see it as a bold step to revive UK investment, while others question its feasibility. The government has not yet commented, but the report is expected to influence the ongoing review of pension regulations. Haldane's suggestion comes amid broader concerns about the UK's economic competitiveness post-Brexit.
Broader context of UK investment
The UK has faced a persistent investment gap compared to other developed nations. Business investment as a share of GDP has been among the lowest in the G7. Haldane's proposal is one of several ideas being floated to address this. If implemented, it would represent a significant shift in pension policy, potentially reshaping how retirement savings are used to fuel economic growth.
