As UK Sends Billions to Ukraine, Pension Funds Take High Risk Gambles for Financing

While the British government has spent or pledged almost £5 billion on arming Ukraine, business ventures at home are crying out for investment. But are the funds for tens of millions of Britons' retirement the right vehicle to fund high-risk start-ups?

Downing Street's scheme to funnel pension money into start-up businesses may be gambling with Brits' pension nest-eggs.

Chancellor of the Exchequer Jeremy Hunt announced in the annual Mansion House address to hundreds of top City of London executives on Monday that nine pension firms had signed up to his new initiative.

That will see big names including Aviva, Legal & General and M&G invest five per cent of their funds in new start-up companies whose shares are as-yet unlisted on the stock exchange.

The agreement "means more investment in our most promising companies, driving growth in the UK," said Hunt. "British pensioners should benefit from British business success."

The chancellor said that up to £50 billion of investment in bold new enterprises could be "unlocked" if other pension funds got on board. And he claimed that could give the average pensioner an income boost of more than £1,000 a year while also channelling funds to "our most promising companies, driving growth in the UK."

But financial pundits — and even the government's own official advice — say the scheme is a dangerous gamble with tens of millions of workers' nest-eggs that could actually leave them £1,300-per-year worse-off when they retire.

That risk will fall mainly on those working in the private sector. British law now dictates that firms must have pension schemes for their employees. But while many public-sector workers have government-run pensions guaranteed to keep pace with inflation, private businesses generally sign their staff up to investment funds that rise and fall with the stock market.

Meanwhile Parliament keeps pushing up the official retirement age at which workers can claim their state pension — a result of decades of government mismanagement of individuals' contributions to National Insurance, the UK's social security tax.

The UK spent £2.3 billion in 2022 on military aid to Ukraine for NATO's proxy conflict with Russia, and has pledged to match that figure this year.

But sanctions and import embargoes on Russia over its military operation — hot on the heels of the COVID-19 pandemic — in Ukraine have wreaked havoc upon the British economy, sending the official inflation rate soaring into double figures with energy and food prices rising by half.

The Bank of England has raised its base interest rate to five per cent, potentially raising monthly mortgage payments by £500 for millions of homeowners.