Reform vows to overhaul pension schemes for new local government workers

The core of Reform’s pension reform lies in halting new entrants to the existing defined benefit schemes. These schemes, which currently serve over 7 million members and pensioners across the UK with assets exceeding £400 billion, guarantee a specific level of income in retirement. This income is typically linked to a worker’s final salary or average earnings, providing a predictable and often inflation-protected pension for life. For employers, these schemes carry significant financial risk, as they are obligated to meet the promised benefits regardless of investment performance. The burden of this risk often falls on taxpayers, as local authorities must ensure the funds are adequately resourced. In contrast, defined contribution schemes, prevalent across most of the private sector, offer no such guarantee. Under a DC model, retirement income depends entirely on the total contributions made by the employee and employer, combined with the investment returns (or losses) generated by those contributions in the financial markets. The risk shifts from the employer to the individual worker, who bears the uncertainty of market fluctuations. Reform argues that moving to DC for new hires aligns the public sector with private sector norms, making public employment costs more predictable and sustainable in the long term.

This proposed shift has, predictably, drawn sharp criticism from public sector unions. When the idea was first mooted last November, Prospect, a prominent public sector union, condemned it as a "baseless attack on public servants." The union warned that such a move would "only worsen the current recruitment and retention crisis in our public services, and would plunge the services people rely on into staffing chaos." Jon Richards, assistant general secretary of Unison, another major public service union, echoed these concerns, asserting that Reform’s leadership was not aligned with the interests of working people. He stressed that "Forcing council staff on to inferior pensions would leave retired workers poorer and worsen an already severe recruitment crisis for local government." These unions contend that attractive pension schemes are a vital component of the overall compensation package for public sector workers, who often earn less than their private sector counterparts. Downgrading pensions, they argue, would make local government roles less appealing, exacerbating existing shortages in critical areas like social care, education, and waste management. Reform officials have, however, confirmed these changes are now official party policy and will be a cornerstone of Tice’s forthcoming speech in Birmingham.

Beyond the immediate impact on new local government workers, Reform’s vision extends to the broader economic landscape through the creation of a £500 billion British Sovereign Wealth Fund. This fund would be formed by merging the nearly 100 disparate local government pension schemes, a move that the current government has also explored to some extent, albeit without the radical shift to defined contribution for existing members. Reform’s plan, however, goes further by mandating a significant increase in domestic investment. The party proposes to force the newly consolidated fund to allocate a much larger portion of its accumulated assets – specifically 25% – into British companies, products, housing, and infrastructure. This contrasts sharply with current trends, where the allocation of UK pension savings invested in UK companies has plummeted from approximately 40% two decades ago to below 4%. Pension fund trustees have historically prioritised diversification and often chosen to invest in what they perceive as safer assets, such as government bonds, or in shares offering historically higher returns in other international markets, particularly the United States.

Reform claims this mandated increase in domestic investment would funnel an extra £100 billion into UK-listed shares, acting as a powerful stimulus for economic growth. The party argues that by directing this vast pool of capital back into the domestic economy, it can foster innovation, create jobs, and boost productivity. However, this aspect of the plan has also drawn considerable scepticism from financial experts and policymakers. The government itself has expressed a desire to encourage greater pension investment in UK markets but has shied away from mandating such allocations due to concerns about fiduciary duty and potential negative impacts on returns. Andrew Bailey, the Governor of the Bank of England, unequivocally stated last summer, "I do not support mandating, I don’t think that’s appropriate," highlighting the potential for political interference to distort investment decisions and undermine long-term financial stability. Critics point out that returns on investments in UK shares have historically underperformed compared to US shares over the past two decades, although they have shown better performance more recently. Forcing pension funds to invest domestically, even if the UK market is currently performing well, could limit their ability to seek the best possible returns for their members, potentially leaving pensioners poorer in the long run.

Pensions expert John Ralfe has highlighted a critical distinction between Reform’s proposed fund and genuine sovereign wealth funds, such as those in Norway or the Gulf states. Ralfe told the BBC, "Reform forgets that local government pension schemes have made promises to members to pay guaranteed inflation linked pensions over many years. That’s a crucial difference with other sovereign wealth funds which have no promises to pay. They are just a bunch of assets, usually from oil revenues, with no liabilities to meet." This distinction is paramount. Traditional sovereign wealth funds are typically funded by natural resource revenues or budget surpluses and manage assets without specific, guaranteed liabilities to individual members. In contrast, the local government pension schemes have legally binding obligations to millions of pensioners and future retirees. Diverting their assets or mandating specific investment strategies that might compromise returns could jeopardise their ability to meet these long-term commitments, creating significant financial instability. Shadow Chancellor Sir Mel Stride echoed this sentiment, dismissing Reform’s plans as superficial: "Rebranding a government pension scheme does not make a sovereign wealth fund. Reform talk of being the next Singapore but the substance simply isn’t there," he remarked, suggesting the proposals lack the robust financial architecture and strategic depth required for such an ambitious undertaking.

Beyond pensions, Tice’s speech is set to unveil other significant policy shifts that underscore Reform’s broader economic philosophy. He is expected to vow to ditch the government’s current environmental targets, arguing they stifle economic growth and impose unnecessary costs on businesses and consumers. Instead, a Reform government would prioritise energy security and economic output, aiming to "maximise production of every last barrel" of UK oil and gas. This stance aligns with the party’s consistent critique of green policies, which it views as economically damaging. Furthermore, Tice will promise to scrap new employment rights, including protections around sick pay and unfair dismissal, referring to them as "daft regulations" that hinder productivity and burden businesses.

These proposed rollbacks of workers’ rights have ignited a fierce reaction from the Labour Party. A spokesperson declared that Reform had "formally declared war on British workers" with its plans to wind back hard-won protections, including those relating to parental leave and sick pay. Labour contends that such measures would not only undermine the security and welfare of employees but also jeopardise up to a million clean energy jobs, given Reform’s stance on environmental policies. The clash highlights a fundamental ideological divide: Reform champions deregulation and a smaller state to stimulate growth, even if it means reducing social protections and environmental commitments, while Labour advocates for stronger worker rights and green investments as pathways to a fairer and more sustainable economy. The comprehensive nature of Reform’s proposals, encompassing pensions, investment strategy, worker rights, and environmental policy, signals a clear intent to dismantle and rebuild significant parts of the existing economic and social framework should they gain power.