BoE's Andrew Bailey risks deepening 'divide' with Reeves over pension investment

THE Bank of England's (BoE) Andrew Bailey has risked deepening a “divide” with the government by saying he doesn't agree with its proposals to force pension funds to invest in the UK.

The Governor said he supported structural changes in the pension fund industry to encourage greater investment in the British economy - but he did not agree with making it mandatory.

He said reforming the pensions industry needed to be done and “requires a lot of heavy lifting”, but stressed that he hopes changes will be “natural”.

“However, I do not support mandating, I don’t think that’s appropriate,” he said today.

This is contrast to Chancellor Rachel Reeves, who has left the door open to forcing, or mandating, retirement schemes to invest in certain assets if the Treasury is unhappy with these funds’ progress.

Leading British workplace pensions providers have promised to increase their investments in riskier but potentially higher-returning private markets by as much as £50 billion by 2030, with half to be directed into UK assets.

Experts mostly sided with Bailey's opinion that you shouldn't force investment - but said his comments show an increasing divide between the BoE and the government.

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, said: "Bailey is right, we shouldn't force someone to buy UK assets. If our companies aren't attractive enough, it's the wider tax system and infrastructure to blame. 

"Forcing pension savers into inferior assets risks stunting retirement plans through missed growth. Reeves seems to be seeking a quick fix without thinking of the costs."

Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, agreed.

She continued: “Mandating where pensions invest risks undermining fiduciary duty and jeopardising retirement outcomes. Bailey is right: change should be “natural”. If UK investments offer strong, risk-adjusted returns, capital will follow. Reeves has suggested she might compel pension funds if progress is too slow but that misunderstands how investment works. You can’t force good outcomes; you create the conditions for them. Pension savings aren’t a government piggy bank, they’re for financial security in retirement.”

Riz Malik, Director at R3 Wealth, said: "You need to provide people with a compelling reason to invest in UK assets. With all the regulations in the investing world, I find it mind-blowing that the government would even consider mandating what people had to do. 

“They are trying to fix a problem with other people's money. But the question is, what is in it for them?”

Though Harry Goodliffe, Director at HTG Mortgages, had the opposite view, saying he agreed with Reeves that we need to have a “firmer hand” in getting investment in the UK.

He said: "Bailey’s playing the softly-softly card, but let’s be real, just hoping pension funds suddenly start backing the UK economy out of goodwill feels a bit naive. Reeves keeping the door open to mandating shows she knows gentle nudges don’t always cut it. 

“We’ve had years of underinvestment in the UK, if we want real change, there might need to be a firmer hand on the tiller. It's not about forcing bad decisions, it's about finally getting capital flowing where it's actually needed.”

Colin Low, Managing Director at Kingsfleet, added: “Here we have the government and the Bank of England taking opposing views on directed investment into the UK. Furthermore, we have the Bank of England’s Governor wanting structural changes in pension management, when he had previously led the organisation that could have co-ordinated that. 

"Clients and scheme managers must be free to choose the optimal asset allocation for their clients and anything which interferes with that increases the likelihood of sub optimal returns for fund holders.”

Tony Redondo, Founder at Cosmos Currency Exchange, said Bailey's comments show a “divide" between the BoE and the government.

He said: “Bailey opposes mandating pension funds to invest in UK assets, favouring natural reforms, while Reeves considers forcing investments if progress lags, reflecting a divide between market-led and government-directed approaches. 

"Mandates could boost UK growth, but risks undermining pension funds’ fiduciary duties, distorting markets, and reducing global competitiveness. Reforms like tax incentives could encourage voluntary investment, as shown by the £50 billion pledge to UK assets by 2030. Bailey’s market-driven approach may be slower, but it avoids intervention pitfalls. A balanced strategy—reforms plus incentives—seems best.”