“Mind the gap” between the constructive and engaged public commentary and the critical and increasingly concerned private commentary on UK Penson Funds re-aligning to the UK public equity markets. The vested interests are not aligned in this discussion with the result that time is running out for delivering an effective solution to the ongoing liquidity drain from UK Public Equity markets. Pension fund managers first and foremost must put the interests of pension fund holders first, then there are the genuine concerns from pension trustees about being forced to invest in “underperforming UK assets” and this quite apart from the need for both more of us to save for our pensions and to save more to provide the level of pensions we need. Listen to the discussion and you can only conclude that the UK Government has to make the “investment” case for UK Public Equity markets significantly more compelling/ attractive to achieve far greater active pension engagement and higher asset allocations to the UK Public Equity markets. Whether that is achieved through the abolition of stamp duty, bringing back some form of tax credit on UK dividends, creating a British ISA and changing the rules and obligations on pension fund trustees and fund managers or a combination of some/ all of the above or indeed other means (and quickly) is what the pension fund industry needs in order for it to willingly step up in size. If the UK Government really has no fiscal scope to do these things, then – all other things being equal - the UK pension fund industry is unlikely of itself to upsize its asset allocations to the UK Public Equity Market. That leaves only one alternative which is for the UK Government to legislate requiring UK Pension funds to allocate a minimum level of asset allocation to UK public equities. A “forced” solution is not what anyone wants – the UK Government should be setting policies that create the conditions for self-interested pro-active engagement by UK Pension Funds into greater UK public equity asset allocations. Time is increasingly short and discussion time targets of “2026 and beyond” are simply far too distant. Moreover this entire issue is potentially about to become much more difficult – Trump will be in the White House in January 2025, cutting US regulations, cutting US taxes and imposing US trade tariffs, providing potentially yet more fiscal stimulus to the US economy. If you believe that the US equity market will respond in a positive way to “Trumponomics” – then the UK needs to get its act together very quickly indeed as the investment case “gap” between UK public equities and global equities is likely to widen further and potentially accelerate away from us. The time for taking action is now – it is a “call to arms” that the UK must heed. Failure to act leaves U.K. plc exposed to becoming substantially poorer.
Hugh Cutler
2w
Exactly - UK pension funds react logically to incentives - that's why they sold all their UK equities in the first place UK regulation has driven UK pension funds from risk assets and more specifically away from UK equities - not sure an exact reversal of the last 50 years of regulation is doable, let alone desirable, but some simple incentives are not hard to find......
Or perhaps that private companies via a PE structure result in a lower tax take for HMRC than their public equivalents? Especially relevant given budget concerns. In addition an assessment of the impact of higher discount rates resulting in lower levels of investment and lower skills/employment over time?
Mark Birri
2w
Excellent commentary as always Andrew. If the average voter understood the capital situation and potential repercussions for the UK's financial services sector, we might have the kind of creative, bold policies that we so desperately need. Sad state of affairs that in 2024 we're even having to talk about conditioning capital flows to preserve our markets...
Very well said Andrew. On DB schemes, even modest tax incentives tip the balance towards running on for the long term. It's time for UK Capital Markets to show they are active not passive and join you in your campaigning.
TC Jefferson
2w
Great points very well made. There is more than one way to derisk a pension scheme and for far too long the industry has focussed on investment risking, to the detriment of pensioners and UK PLC. Small changes can go a long way to transforming the market.
Cynthia A.
2w
Welk argued, thank yiu Andrew. There doesnt appear to be a sense of urgency as yet. It may soon be too late.
Pension Scheme Chair, Group Taxation Director, Group Pensions Director at Stagecoach Group Limited
2wAgreed. These issues require Bluesky thinking sometimes! The solutions are not too complicated, and could include : 1. Stop digging right away - reform / remove the economic tourniquet that is the DB funding Code - it’s totally self inflicted; no economy ever ‘de-risked’ its way out of a hole. 2 - Invest in our futures :require all DB schemes to re-invest, even at a rate of incrementally 1.5-2.0% per annum from the current deminimus levels. The OBR Fiscal risks and sustainability report of September 2024, sets out that without productivity growth it will not be possible to stop debt rising to 300% of GDP. Insurers invest prudently on a Gilts +1.5-1.75% basis, while the funding code is coercing actual schemes to G+0.5%. Is it better to have that mandate and load shared across say a few hundred +£1bn schemes than a very small concentrated group of large insurers? 3. Galvanise rather than consolidating the 86 LGPS schemes already spread across the country, and which are ready and capable of kickstarting local investment and supporting broader commercial access to pensions. Although not covered by the Code, too many of them are feeling the gravitational Death Star pull of de-risking. They too should be required invest G+1.5-2.0%.