The brutal accusation follows her plan to unlock tens of billions of surplus cash from workplace defined benefit schemes, better known as final salary pensions.
These schemes form the bedrock of retirement income for millions, yet Reeves aims to redirect this money to stimulate growth.
Companies rely on these surpluses as a buffer to ensure pensions are paid even when markets fluctuate.
The total surplus could be as high as £160 billion. Money pensioners assume is secure for life. Currently, much of it sits in low-risk bonds, yielding modest returns. Reeves wants to free it up and put it to work, which sounds good in theory
UK pension funds invest relatively little in the UK, in stark contrast to other nations. This has hit the UK stock market, with FTSE shares undervalued compared to the US.
However, using pension funds to plug economic gaps is fraught with risk. Now, another major flaw has surfaced.
Richard Murphy of Taxresearch.org.uk is a fierce critic of Reeves.
He highlights that around 75% of company-defined benefit schemes are in surplus, totalling £160billion. Yet, restrictions prevent firms from investing these surpluses.
Under Reeves’s plan, pension scheme trustees could agree to share a portion of a scheme’s surplus with employers.
The companyy might then invest the money by buying equipment, expanding operations or enhancing pension benefits.
However, Murphy warns of a critical flaw: these surpluses are a temporary illusion.
He said: “They exist only because interest rates are so high.”
Higher interest rates and gilt yields inflate presumed investment returns, crucial for meeting vast pension obligations.
When interest rates fall, so will those returns. If trustees release surpluses to employers, companies will invest as they see fit.
But what happens if those surpluses shrink? The company investments will remain, leaving pension schemes dangerously exposed.
“This is not a sound investment strategy,” Murphy warns. “I strongly suspect this idea will not work.”
He is not alone. Rachel Vahey, head of public policy at AJ Bell, argues that Labour is “encouraging pension trustees to take risks with other people’s money”.
She warns: “Trustees could find themselves caught in the crosshairs, facing pressure from employers on one side to release funds, whilst meeting their number one objective to protect pension scheme members on the other.”
Vahey also stresses that today’s surpluses are largely due to soaring gilt yields, which may not last. “If employers are simply allowed to access this newfound surplus as though it were a windfall, that would present a clear danger to pension scheme finances.”
She fears a repeat of past pension scandals. “The government risks playing fast and loose with people’s financial later lives. Protection must be built into any changes to prevent future Maxwell-style raids.”
With analysts predicting multiple interest rate cuts this year, Reeves’s plan could unravel sooner than expected.
Murphy remains hopeful that pension trustees will resist: “They are more competent than Rachel Reeves assumes. They will see through this.”
If he’s right, what crackpot idea will the Chancellor come up with to conjure up growth next? I shudder to think.
