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The pension industry responded with alarm to threats from Chancellor Rachel Reeves to force it to invest in the UK, with industry figures warning the move could damage confidence and leave retirees with less income. Ms Reeves wants funds managing pension contributions paid by millions of working people to invest billions in such as new energy schemes. She has won who signed up to a voluntary initiative, but the Chancellor also warned she could make the scheme compulsory.

Industry representatives urged Ms Reeves to rule this out when they spoke to MPs. They told the House of Commons Work and Pensions Committee that the Government must ensure investing in the UK provides a good return for savers, rather than ordering pension funds to invest in Britain. Joe Dabrowski, Deputy Director of the Pension and Lifetime Savings Association, said making the policy mandatory would mean "poor value for money".

He added: "There's a really important question of trust. Trust in the pension system is sometimes fragile, and the risk that people perceive government interference in their investments is a real one.

"Savers when they are asked generally support investing more in the UK but they don't generally support the government directing that or being perceived to direct that in any way."

Rachel Croft, Chair of the Association of Professional Pension Trustees, said: "When looking at investment decision-making we will look at what investments in front of us are likely to get the best return for our members. Forcing us to invest in the UK solely may run counter to that."

She said pension funds would help fund British infrastructure without coercion if there is "a pipeline of suitable investments" and it was up to the Government to ensure this was in place.

Ms Croft told MPs: "As trustees our focus is on seeking the best possible member outcomes so we would be against any form of mandation that would prevent us from achieving that objective."

Yvonne Braun, Director of Policy at the Association of British Insurers, said a compulsory scheme was "not desirable". She said: "We would aways advocate for incentives and reasons to invest in the UK rather than a mandation."

However the industry representatives predicted the Chancellor's scheme would be a success as long as it remained voluntary.

The agreement signed this week, known as the Mansion Accords, involved firms managing defined contribution pension funds. These manage money paid by working people, typically taken out of their salary each month, which are invested by fund managers and can later be used to provide an once they stop working.

Firms signing up pledged to allocate at least 10% of their default funds in private markets by 2030, with at least 5% of the total allocated to the UK. But Ms Reeves this week repeated warnings that she did not rule out mandating pension funds to allocate money to UK assets.

She said in an interview: "I'm never going to say never. But I don't think it's necessary. We don't need to mandate them if people are willing to sign a voluntary accord."

Conservatives have raised concerns over the plans, with shadow chancellor Mel Stride arguing that "pension savings should never be there to dig a chancellor out of the economic hole that she has made".

He said: "Reports that the Government intends to take new powers to mandate pension funds to allocate minimum amounts to specific classes of assets should be a matter of great concern."