Sometimes you have to go back to basics. What is your pension for? Is it a) to fund your retirement or b) to prop up the UK stock market and, with it, the City of London?<\/p>\n
Bad luck if you answered a) because plenty of people seem to have different ideas nowadays. And not least Rachel Reeves, who still hasn\u2019t dropped her threat to \u201cmandate\u201d UK pension funds to invest wherever she sees fit. Not only her. Now along has come the New Financial think tank, founded and led by William Wright, with a less draconian but still wrongheaded plan. <\/p>\n
His starting point is uncontentious enough: \u201cVibrant public equity markets are crucial for the health of the UK economy.\u201d And, right now, \u201cvibrant\u201d is not a word you\u2019d attach to the London market. A key reason for that? The long-standing issue that investment by UK defined contribution pension funds in UK equities has fallen to just 4.9 per cent of total assets versus a global domestic average of 13 per cent-plus. As a proportion of total equity allocation, only 8.9 per cent now goes into UK shares versus 40 per cent a decade ago. <\/p>\n
\u2022 Force pension funds to invest far more in UK stocks, ministers urged<\/a><\/p>\n So, here\u2019s New Financial\u2019s fix: why not \u201crequire all DC default funds to adopt a UK weighted allocation\u201d, forcing them to lift that 8.9 per cent to \u201c20 to 25 per cent\u201d of their total equity holdings? Yes, individuals would have an \u201copt out\u201d. But seeing that, according to the Pensions Policy Institute, 96 per cent of DC fund members stay in the default investment strategy, it looks like mandation by the back door.<\/p>\n Still, the plan could, on the think tank\u2019s maths, add \u00a395 billion by 2030 to the \u00a333 billion that UK DC funds today invest in UK equities, assuming asset growth. And, hey presto, back would roar a UK market full of vibrancy. Simple, no? <\/p>\n Naturally, the plan has gone down a treat, too, with all the likely suspects. Dame Julia Hoggett, the London Stock Exchange boss, is on the press release banging on about how \u201cthe need to stimulate growth is profound\u201d, adding: \u201cDenying the economy of investment is tantamount to deliberately starving the flame of economic growth of the oxygen it needs to spark to life.\u201d Do people really talk like that? As for the Schroders boss Richard Oldfield, he reckons the plan \u201ccould make a meaningful difference\u201d. Yes, to his profits, perhaps. <\/p>\n And there\u2019s the problem. New Financial is funded by asset managers, insurers, banks, the stock exchange and others who stand to benefit from its plan \u2014 the likes of the City of London Corporation. Ask Wright whether he\u2019s not just banging the drum for them and he gets a bit prickly, saying that would be \u201ca hugely simplistic way of looking at things\u201d and also wrong. <\/p>\n Even so, what\u2019s in it for the pensioners? In fairness to New Financial, its report is thorough, so it does point out that over the past ten years, UK equities have delivered a mere 6.2 per cent annualised return \u2014 just one third of that, in dollar terms, from US equities. So, on present form, the plan is an invitation to lose money. Wright has an answer for that too: a survey of 1,055 adults conducted for New Financial by H\/Advisors. It found that \u201cnearly two thirds of people said their pension should invest more in the UK stock market even if returns might be lower\u201d. Who did they interview? Complete idiots? <\/p>\n Yes, pensions attract tax relief \u2014 \u00a349 billion in 2023. And Wright says the \u201cquid pro quo\u201d for that should be extra UK investment. But the relief is to incentivise investment generally, so people do not become a burden on the state in retirement. And, with that goal in mind, pension trustees have a fiduciary duty to try to maximise returns, not bolster the UK stock market or the City. The benefits are meant to be for you. <\/p>\n Peters\u2019 friends<\/p>\n Anyway, maybe if we\u2019d sacrificed a bit more of our pensions to UK equities, we\u2019d have hung on to Petershill Partners. What that? The investment vehicle backed by Goldman Sachs, or at least funds it manages. Having floated at 350p a share in 2021, with a market value of \u00a34 billion, it\u2019s cancelling its listing, fed up with UK stock market life (report, page 37). <\/p>\n Petershill always looked a curious beast. Almost 80 per cent of the group is held by private funds managed by Goldman Sachs with investments in two dozen private equity and hedge funds. The idea was to give the one fifth free float the sort of exposure they couldn\u2019t easily get to them. Yet, wouldn\u2019t Goldman have kept the business for itself if the investments had been that good? And Petershill was too opaque. It never disclosed the size of its stakes in the firms or at what value it held them. And, of the 24, the only one most people had heard of was Chelsea FC-owner Clearlake. <\/p>\n