Key Takeaways
- • The pensions industry rejected a proposal from LSEG and more than 100 British business executives to steer defined contribution default funds toward UK equities, arguing it ignores savers' interests.
- • The proposal would require a minimum 25% of default fund assets to be invested in UK investments across asset classes, with savers still free to opt out.
- • UK pension funds hold 4.1% of equity investments in UK-listed companies, down from 53% in 1997 and versus a global average of 13%-plus for defined contribution funds, according to LSEG's letter.
- • LSEG estimates the proposal would add between 76 and 95 billion pounds ($127 billion) to UK equity investment by 2030.
- • Pensions UK warned that mandating UK allocations would introduce significant risk to investment returns.
Summary
The pensions industry has pushed back against a proposal backed by the London Stock Exchange Group (LSEG) and more than 100 British business executives to direct more pension capital into UK stocks, telling Reuters that the plan ignores the interests of savers. The executives, including the chairs of Anglo American and Barclays and the CEO of Compass Group, wrote to Britain's finance minister last week urging action to reverse the decline in domestic share purchases, arguing it deprives companies of capital, exports wealth creation and damages economic growth.
In response, the signatories proposed that defined contribution pension schemes ensure their default funds, into which savers are automatically enrolled, hold a minimum 25% of assets in UK investments across asset classes. Savers would remain free to opt out and choose alternatives. According to the letter, authored by LSEG chairman Don Robert and CEO David Schwimmer, UK pension funds hold 4.1% of their equity investments in UK-listed companies, compared with 53% in 1997 and a global average for defined contribution funds of 13%-plus. They estimated the proposal would increase overall investment in UK equities by between 76 and 95 billion pounds ($127 billion) by 2030.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said schemes were already seeking UK investments with attractive risk-adjusted returns. "Going further by requiring a proportion of default fund assets to be invested in UK would introduce significant risk to investment returns. Somehow, the interests of the saver are being lost in this debate," she told Reuters. The Association of British Insurers' Yvonne Braun said investments should not be influenced by external pressures and that savers "must be at the heart of all policy decisions."
Reuters reported that incentivising UK asset ownership has become a key government objective for reviving growth, but many warn against mandating how pensions invest, a power the government holds in reserve. Past regulations have been blamed for steering some schemes into government bonds and out of stocks, but investors also point to the appeal of overseas markets; the S&P 500 has risen nearly 500% since 2010, against roughly 80% for the FTSE 100. LSEG declined to comment, and Britain's finance ministry did not immediately respond to a request for comment.
In response, the signatories proposed that defined contribution pension schemes ensure their default funds, into which savers are automatically enrolled, hold a minimum 25% of assets in UK investments across asset classes. Savers would remain free to opt out and choose alternatives. According to the letter, authored by LSEG chairman Don Robert and CEO David Schwimmer, UK pension funds hold 4.1% of their equity investments in UK-listed companies, compared with 53% in 1997 and a global average for defined contribution funds of 13%-plus. They estimated the proposal would increase overall investment in UK equities by between 76 and 95 billion pounds ($127 billion) by 2030.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said schemes were already seeking UK investments with attractive risk-adjusted returns. "Going further by requiring a proportion of default fund assets to be invested in UK would introduce significant risk to investment returns. Somehow, the interests of the saver are being lost in this debate," she told Reuters. The Association of British Insurers' Yvonne Braun said investments should not be influenced by external pressures and that savers "must be at the heart of all policy decisions."
Reuters reported that incentivising UK asset ownership has become a key government objective for reviving growth, but many warn against mandating how pensions invest, a power the government holds in reserve. Past regulations have been blamed for steering some schemes into government bonds and out of stocks, but investors also point to the appeal of overseas markets; the S&P 500 has risen nearly 500% since 2010, against roughly 80% for the FTSE 100. LSEG declined to comment, and Britain's finance ministry did not immediately respond to a request for comment.
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