Thousands of UK retirement schemes should be merged into just half a dozen £400bn superfunds to turbocharge investment in businesses and infrastructure, Sir Tony Blair’s think tank has said.

In a paper today, the Tony Blair Institute backs proposals circulating in Whitehall to turn the Pension Protection Fund (PPF) – a lifeboat scheme for the pension funds of companies which go bust – into the first of a new generation of “global scale” schemes that are better-equipped to invest in Britain for the long term.

Under this plan, around 4,500 of the smallest final salary, or “defined benefit”, schemes, would be offered the chance to merge with the PPF while retaining the terms offered to members, creating a new behemoth known as GB Savings One.

If the plan is successful, the institute suggests this model could be replicated across the rest of the industry, with a string of new not-for-profit entities absorbing the remaining final salary schemes, 27,000 defined contribution schemes, local government retirement pots and public sector pension schemes to create “around half a dozen” mega schemes of between £300bn and £400bn in size.

The Treasury is already considering plans to turn the PPF into a major pension investor through a proposal similar to the one being suggested by the institute.

The paper says: “If implemented, these changes would secure better outcomes for UK pensioners, release capital for investment in long-term growth, reinforce national security by reducing the UK’s dependence on foreign capital, and begin the process of restoring the dynamism that the UK economy has steadily lost over the last two decades.”

The proposals come as policy makers draw up plans to revive investment in equities by pension funds, which put half of their assets in UK equities 20 years ago but today only invest 4pc.

This trend has been blamed for British companies selling out to foreign rivals rather than choosing to grow independently, while critics also complain it has left those who do want to raise capital less willing to do so in London.

Jeegar Kakkad, director of policy at the Tony Blair Institute, said: “We need these reforms to benefit pensioners and light a fire under the UK economy.

“The UK’s entrepreneurs and innovators shouldn’t have to look abroad for the capital to match the ambition of their ideas.

“By deploying long-term equity to invest in the UK’s economic future these superfunds would help restore the lost vitality of UK industry.

“They would ignite the UK’s creativity, innovation, the energy transition and re-establish London as a global financial centre.

“They would also give our pensioners the returns they deserve, lifting returns from being among the poorest in the industrialised world to among the best.”

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