The chief executive of Lloyds Banking Group has warned the government against plans to force pension funds to invest in British assets, likening such a move to the type of policy used in communist China.
Charlie Nunn also cautioned that the plans could be “in conflict” with their primary goal of seeking the best returns for pensioners.
Labour’s wide-ranging pension reform includes the creation of megafunds – eventually each investing more than £25bn – with one key idea being that lower fees could mean more money for those who have pensions within them.
But alongside that, forthcoming legislation change is expected to include a superpower to allow what the Treasury says is “to set binding asset allocation targets”, which could see the government essentially force pension funds to invest set minimum amounts in UK assets.
But Mr Nunn has cautioned that governments setting those allocation targets could mean funds are prevented from complying with their legal duty to provide the best possible returns – and also compared the use of force to a form of State-imposed control in China.
“Mandating allocations of pension funds is a form of capital control. I have spent 10 years of my working life in China and many jurisdictions where there are capital controls,” Mr Nunn told the FT.
“That is a different model and that is a difficult slope for an economy that believes it is an open economy.”
The Lloyds Banking Group, as well as owning Lloyds, Halifax and Bank of Scotland, owns the Scottish Widows retirement and pension fund. Lloyds also already has £35bn allocated to investing in British assets, noted Mr Nunn.
There has been an ongoing debate over whether UK businesses are undervalued versus overseas equivalents due to a liquidity shortfall and a lower risk tolerance, along with how best to narrow that gap and encourage more firms to grow within Britain.
Against fears of enforced investment, the chief executive of the British Business Bank, Louis Taylor, has told pensions funds not to overlook a “goldmine of opportunity” among private UK firms.
“If everybody appreciated properly the opportunities there are in the UK, nobody would need mandating,” he told the Times.
Businesses being able to access more investment would create a “virtuous circle”, he added, because more firms would in turn come to the UK to seek investment, bringing with them more innovation, more jobs and more contribution to economic growth.
