‘Too small’ UK pension funds hold back growth, says Rachel Reeves

However, critics say the plans could put savers’ money at risk.

“Conflating a government goal of driving investment in the UK and people’s retirement outcomes brings a danger because the risks are all taken with members’ money,” said Tom Selby, director of public policy at AJ Bell.

He said the current system encourages trustees to deliver “the highest possible income in retirement for members” rather than focus on UK-wide economic growth.

This sometimes means investing in things like US stocks and shunning the UK investment which the government is keen on.

And though bigger funds can mean bigger rewards, they can also mean bigger risks, with Canadian pension fund the Ontario Municipal Employees Retirement System being the largest investor in troubled Thames Water.

Others say there is a risk that larger funds struggle to find enough big UK projects to invest in.

“Large funds need substantial, reliable projects to generate returns, but the market may struggle to offer enough of these opportunities, especially in the infrastructure sector,” said Jon Greer, head of retirement policy at Quilter.

He added that if “too much money chases too few viable investments” funds might be forced into “riskier” investments.

Shadow chancellor Mel Stride said the Conservatives “will be looking closely at the detail of what Rachel Reeves sets out – particularly regarding the mandating of where investments are to be made”.