Rachel Reeves wants to amalgamate 86 local government pension schemes into a handful of “megafunds” worth £360billion which will be encouraged to invest more money in the shares of UK companies. The Labour Chancellor outlined her pensions shake-up in last night’s Mansion House speech.

The reluctance of pension funds to invest in the UK is certainly bizarre. In 1997, they collectively owned 22.1% of the UK stock market but, by 2022, it was a paltry 1.6%. This is much to do with Gordon Brown, who obliged pension funds to invest more in government bonds – because he wanted them to lend him the money for his spending splurge and also because, he argued, bonds were a safer match for pension funds’ liabilities than were shares. It was a significant blunder.

That the UK stock market has underperformed in the past two decades is partly down to the pension industry shunning it. It has left a swathe of undervalued companies, snapped up by the preying sharks of US private enquity at bargain prices. Moreover, as we found out after Liz Truss’ mini-budget, bond investments aren’t safe at all. A slide in the bond market nearly led to the collapse of pension funds and was averted only when the Bank of England stepped in.

I would love to see UK pension funds – both state and private – backing UK companies. In virtually every other country, pension funds have a big stake in native businesses. Perversely, overseas pension funds seem more interested in acquiring UK assets, like the Canadian pension fund which has just bought Glasgow, Aberdeen and Southampton airports.

But isn’t Reeves missing the most important thing about public sector pensions? Her proposals concern local government pension schemes only. Almost uniquely for the public sector these are so-called “funded” schemes, where employees’ contributions are actually invested in the hope that they will grow and cover the cost of current employees’ pensions when they retire.

Most public sector pensions, including those in the NHS, civil service, police and firefighters, are “unfunded”. In short, no money is invested.

Instead, the contributions made by current employees are used to pay today’s pensioners – with the taxpayer making up the shortfall.

Last year, employees put in £45.3billion but the government paid out £53.1billion in pensions, leaving the taxpayer to cough up £7.8billion.

But even that hopelessly underestimates the real cost of public sector pensions. The future liabilities are enormous. In recent years they have exceeded 100% of UK GDP. Worse, public sector pensions are “defined benefit” schemes, meaning that retirement payments are linked to salaries during a claimant’s working career. The burden of future pension liabilities, therefore, increases with every rise in public sector pay – and Reeves has merrily been agreeing to those recently without considering the eventual cost.

Put simply, if the public sector doesn’t keep expanding with more workers contributing to these unfunded pension schemes, the Government could go bust. If you tried to run such a pension scheme in the private sector you would end up going the way of Bernie Madoff. Most public sector schemes are nothing more than a giant Ponzi scheme, except unlike Madoff’s they are not allowed to fail because the good old taxpayer is forced to bail them out.

Meanwhile, life for private sector workers gets tougher. There are few defined benefit pension schemes left available to them. Most are “defined contribution” schemes – meaning payments are linked to how well the pension fund performs. If investments slide, pensioners get less.

Reeves is doing everything possible to undermine the wealth of private pensioners. Windfall taxes have gobbled up the profits of oil and gas companies which pay the dividends on which small investors rely. Higher rates of National Insurance contributions from April will also mean lower dividends.

If you invest in property for your retirement, Reeves has clobbered you for that, too, through higher taxes on buy-to-let investors. The Chancellor seems to see landlords as wealthy, evil capitalists – yet most are small-time investors saving for their retirement. Britain is evolving into two classes: one with public sector workers who can look forward to a well-funded retirement free of financial worry; the other, formed of private sector workers, will see their retirement finances revolve around investments which the Government has done its best to hamper.

Were Reeves brave, she would close defined benefit pension schemes in the public sector, to ensure that all pensioners in future will be in the same boat. As things stand, it falls to workers who are members of defined benefit pension schemes to ask for more pension contributions.

I won’t hold my breath about the current Chancellor taking the necessary action. But one of her successors will certainly have to do so to stop public sector pensions breaking the Government’s finances.