Chancellor Rachel Reeves is going to leave millions of pension savers poorer when she announces dramatic changes next month, industry leaders fear. The Chancellor wants pension funds to invest more in the UK and although the scheme is officially voluntary, she is said to be using “strong-arm tactics” to force pension providers to sign up.

But experts say it means that working people who invest into a pension will get a lower return on their investment, leaving them with less money when they retire. Pension funds wil be expected to allocate 10 per cent of their assets to private funds, half of them in the UK, the Financial Times reports.

The aim is to use tens of billions of pounds of pension fund assets to invest in UK businesses and help to grow the economy.

But one industry executive told the newspaper that the Treasury had warned it would make the scheme compulsory if the pension industry failed to make the change voluntarily. They said: “We have our arms shoved up behind our backs.”

And an executive told the Financial Times that savers would lose money as a result. They said: “How can we explain to savers we are putting money into assets which have been proven, over a period of time, to deliver a lower return?”

Another pensions industry insider told the newspaper: “I think there will be a ‘sword of Damocles approach to encourage greater efforts. The new target will be voluntary but you could create a mechanism in legislation that would allow them to make it mandatory.”

The Treasury declined said its review of pensions investment would consider whether “further interventions may be needed by the government” to ensure investments are helping the British economy grow.

But Ms Reeves has previously said she wants to ensure pension funds owned by around 26.4 million British people are benefitting the economy rather than investing overseas, in a similar way to Canada where pension fund managers are already encouraged to invest in that country.

She said last year: “I want British schemes to learn lessons from the Canadian model and fire up the UK economy, which would deliver better returns for savers and unlock billions of pounds of investment.

“We’re already beginning to see schemes announce plans to invest. That’s a vote of confidence in our work to fix the foundations of the economy, rebuild Britain and make every part of our country better off.”