Rachel Reeves is accused of plotting to “hijack your pension” and endangering retirement incomes. Millions of Britons will be worse off in retirement if Chancellor Rachel Reeves brings in rules directing pension funds where they must invest, experts have warned.

The Treasury wants pension funds to commit to investing more in the UK. A deal is due to be signed imminently which would see investment managers commit 10% of assets to private funds, with half going to the UK.

It has reportedly warned executives it could bring in a legal requirement to do this if they fail to fulfil the voluntary pledge.

Shadow Chancellor Mel Stride said: “Rachel Reeves wants to hijack your pension to paper over the cracks in her own failing agenda. Pension funds exist to serve savers, not to bankroll a government that’s run out of road. “Forcing funds to prop up UK assets – regardless of whether the returns stack up – risks leaving millions worse off in retirement. This is classic Labour – a Government that thinks it knows better than the markets, better than trustees, and better than the people whose money they’re gambling with.

“We need policies that grow the economy and respect and empower savers, not a Chancellor using strong-arm tactics to cover her own economic mismanagement.”

Maxwell Marlow of the Adam Smith Institute warned the plans would be bad for pensioners and “pressure pension funds to invest in underperforming UK companies instead of focusing on securing the best possible returns”.

He said: “This would hurt those who have worked hard all their lives to prepare for retirement. Pension funds know which companies will perform best for their members.

“If they are avoiding British companies, there is a good reason for it. We won’t fix our economy by forcing capital into British firms.

“Instead, we should create an environment where businesses have the freedom to grow. That means lower taxes, less regulation and better investment in infrastructure.”

Pensions minister Torsten Bell insists it is “time for Britain to start investing in its future again” and a new Pensions Bill is expected in the coming months. He recently told the industry that defined contribution funds only allocate 0.5% to private equity, compared with 5% in Australia.

But Tom Clougherty of the Institute of Economic Affairs warned against trying to direct investment.

He said: “Pension funds should be left to focus on getting the best possible returns for savers... The great danger of the government’s approach – trying to get everyone to invest the same way – is that if it doesn’t work out, everyone loses as a result. And that is a very real possibility.”

Daniel Herring of the Centre for Policy Studies, said: “We all want to see more investment in UK companies, and with huge sums of capital at their disposal, pension funds seem a good source for that investment. However, strong-arm tactics from the government risk undermining the main purpose of these funds to grow their clients’ pension pots as much as possible.

“The real question is why aren’t these firms investing in more UK businesses in the first place? If Rachel Reeves really wants to see more investment in UK companies, she should focus on the business environment: the regulatory burden, taxes and cost of energy.

“If she makes Britain the best place in the world to do business, investment will follow.”

The Treasury says it will not provide a “running commentary”. This spring the pension investment review will recommend whether “further interventions” are needed.

The Chancellor is expected to set out her financial services strategy in her Mansion House speech on July 15.