Reform UK Proposes Sovereign Wealth Fund Using Local Council Pension Assets

Reform UK has announced plans to establish a sovereign wealth fund (SWF) by pooling the assets of local council pension schemes, aiming to stimulate economic growth through investment in British businesses. The proposal, unveiled by deputy leader Richard Tice, seeks to consolidate approximately £480 billion in assets and generate an annual surplus estimated between £20 billion and £30 billion.

Consolidating Local Government Pension Scheme (LGPS) Assets

The Local Government Pension Scheme (LGPS) in England and Wales currently holds around £402 billion in assets, with Scotland and Northern Ireland contributing an additional £78 billion as of March 2023. Currently, the scheme is fragmented across 98 administering authorities, with 86 in England and Wales undergoing a merger process to form six investment “pools” by April 2024, as mandated by the Labour government. Currently, only 17% of LGPS assets are invested within the UK.

Proposed Investment Strategy and Policy Changes

Tice cited British Steel as an example of a company that could benefit from investment from the proposed SWF, specifically for refurbishing its blast furnaces. Alongside the pension fund proposal, Reform UK announced a series of policy changes, including the repeal of net zero targets, zero-emissions vehicle mandates, employment rights, and property rental rules introduced by the current Labour government. The party also intends to implement “heavy tariffs” on Chinese cars.

Pension Scheme Reforms and Defined Contribution Options

Reform UK’s plan includes transitioning new LGPS members to a defined contribution pension scheme, closing the defined benefit element to new entrants. Existing members’ pensions would remain unaffected. This shift is projected to reduce employer contributions to approximately 10%, potentially saving councils “millions and millions every year,” compared to the current average of 21% of pay.

Similar Proposals and Expert Skepticism

The concept of consolidating UK pension schemes has been previously explored, with the Tony Blair Institute advocating for a “superfund” in 2023 to drive investment in British infrastructure and industry. However, pensions experts have expressed skepticism regarding Reform UK’s claims of improved returns through increased UK investment. Sir Steve Webb, a former pensions minister and partner at consultancy LCP, cautioned that lower returns could necessitate increases in council taxes. He also noted that increasing equity allocation could lead to greater performance volatility and fluctuating contribution rates.

Independent pensions consultant John Ralfe stated that the LGPS “cannot become a SWF,” due to existing pension obligations to its members.

Potential Risks and Considerations

Experts warn that focusing solely on UK investments does not guarantee higher returns. The LGPS has already achieved average annualised returns exceeding 7% over the past decade. Changes to the pension scheme, such as moving new joiners to a defined contribution model, would have a long-term impact.