Rachel Reeves making huge mistake with your pension – barely believable | Personal Finance | Finance

Labor chancellors act as if retirement savings were always theirs. Whenever they’re short on cash they go after our retirement pots. Former Labor Chancellor Gordon Brown was a master. The secret tax raid on pensions in 1997 remains infamous. It eliminated private sector final salary plans, leaving millions of retirees poorer. Public sector pensions remain untouched, of course.

Rachel Reeves picks up where she left off and imposes inheritance tax on unused defined contribution pensions of the type used in the private sector. It also plans to scale back salary sacrifice programs from 2029. Reeves has another trick up his sleeve, and it could expose our retirement funds to a new world of risk.

The chancellor is pushing pension funds to invest more of their members’ savings in private markets and British companies. The policy builds on the Mansion House Agreements signed last year by leading pension providers including Aviva, Legal & General and M&G. They agreed to invest at least 10 per cent of workplace pension default funds in private market assets by 2030, with at least half invested in the UK.

Business leaders want Reeves to go further and have up to 25 per cent of pensions invested in British companies. They argue this could unlock up to £95bn for domestic businesses and infrastructure. There is a logic to the discussion. But there is also a dangerous principle at stake.

Pension tax cuts cost the Treasury billions of dollars every year. Ministers naturally want some of this money to flow back into the UK economy rather than into overseas exchanges.

But his timing is terrible. Forcing retirement savers to enter private markets further looks extremely risky at the moment. Private equity, private credit and venture capital are difficult to value and often highly volatile. Losses can remain hidden for years before suddenly being revealed. This is especially worrying at a time when the AI ​​bubble is close to bursting and the global private credit market is in dire straits.

The government insists it is not forcing anyone to invest. But the Pension Schemes Bill currently passing Parliament allows ministers to force pension schemes to invest a minimum percentage of savers’ money in infrastructure and private markets.

Insurers and pension providers are calling on ministers to remove the clause. They warn that giving politicians the power to determine where retirement money is invested risks turning retirement savings into a source of funding for political projects.

Blank-mouthed pensions minister Torsten Bell vows the powers will only be used as a backstop if voluntary agreements fail. I’m not sure I can trust him. Bell has argued for years for higher taxes and a larger role for government. The idea that men like him could gain control over how retirement funds are invested is not worth considering.

Pension funds exist to provide solid long-term returns to their members, not to finance government priorities. The industry signed up to Mansion House only because it feared the alternative would be far-fetched. These fears now appear justified. The new powers could be used to direct pension schemes to support infrastructure projects, private equity deals or even distressed areas of the stock market.

If savers believe their money is being diverted for political rather than financial reasons, trust in the entire system could be permanently damaged. Rachel Reeves may believe she has unlocked billions of dollars for Britain’s growth. The danger is that it will destroy our pensions in the process.