The stake of pension funds in Britain’s stock markets has reached an unprecedented low, marking a historic decline, as these funds actively pursue more lucrative returns abroad.
Official figures from the Office for National Statistics (ONS) reveal that the collective share of insurance and pension funds in UK quoted shares plummeted to 4.2% in 2022, the lowest on record.
With the Chancellor announcing Mansion House Reforms in his Autumn statement, Claire Trachet, founder and CEO of business advisory firm, Trachet, discusses the significance of these plans amidst a struggling UK market.
The historic low of 4.2% UK quoted shares in insurance and in pension funds in 2022 marks a significant decline from 6.1% in 2018 and a sharp contrast to 1991 when these sectors collectively held 52.1% of UK quoted shares.
The ONS attributes this downward trend to various factors, including companies anticipating more profitable returns from overseas shares and changes in pension fund regulations.
Notably, the introduction of accounting standard FRS17 in 2000, requiring companies to disclose deficits in their defined benefit pension schemes, may have led pension funds to opt for lower-risk investments like corporate and government bonds instead of UK quoted shares.
The government’s Mansion House Reforms, announced in July, aimed at encouraging pension funds and insurance companies to increase their allocations to UK shares and stimulate productive finance, coincide with this shift in investment patterns.
These measures are expected to provide an extra £1,000 for pension pots every year, the aim being to help funds invest in high growth, innovative companies that will provide the backbone of the UK’s emerging tech sector in the years to come.
Claire Trachet, CEO/Founder of business advisory firm, Trachet, said, “The Chancellor and the Prime Minister seem dedicated to revitalising investments in the UK business and infrastructure within this sector.
“The London Stock Exchange has been facing harsh competition from the New York and the European Union’s financial sectors, and until now, has been on the losing end of this battle.
“It will be interesting to see whether these efforts will bring about the significant impact required, but with the aim of the Mansion House Reforms being to help funds invest in high growth, innovative companies that will provide the backbone of the UK’s emerging tech sector in the years to come, it is hoped that this will provide a stronger pipeline of potential company listings for the LSE.”