Steer clear of our pension funds, Chancellor! Let us decide where to invest our retirement savings, insists ALEX BRUMMER
The British government has proposed new measures to address a long-standing concern: the steep decrease in pension funds' investments in UK equities. Over the past twenty-five years, the allocation to UK shares has plummeted from a substantial 53% in 1997 to a mere 4.4% in the present day.
This decline has been driven by a combination of factors. Not only has the value on the London Stock Exchange been subdued, but it has also facilitated the offshoring of promising British enterprises, such as smart chip pioneer Arm Holdings, to foreign and private equity entities.
Chancellor Rachel Reeves has accurately identified the issue: Britain's largest pots of savings are not being utilized in the national interest. In an effort to rectify this, she has persuaded 17 of the nation's most significant private pension managers to allocate up to £50 billion of defined contribution funds toward the UK. Priority areas include infrastructure and start-ups.
In the latest initiative, Reeves aims to emulate the success of Canada's public sector union schemes and Australia's superannuation fund. To achieve this, the government seeks to consolidate £1.3 trillion of scattered defined benefit assets held by local authorities and others into several large-scale funds, which would help cut costs and simplify the process of backing UK projects.
However, concerns have been raised about the government's proposal to assume backup powers to guide the allocation of unlocked funds to 'local investment priorities.' Such a move could compromise the fiduciary responsibility of trustees to generate the best returns and undermine the free market economy of the United Kingdom.
One solution to this issue may be to tackle the root causes of pension funds' risk aversion. Stricter regulations enacted following the Maxwell pension scandal of 1991 prompted managers to prioritize safe assets—namely government bonds—over equities. The shift toward overseas investments and government securities was further intensified by Gordon Brown's 1997 raid on the tax break on dividends paid into pension funds.
To foster a culture of investing in UK equities, Reeves should consider abolishing stamp duty on UK share trades. This would level the playing field for British investors and encourage a greater injection of capital into domestic markets. Notably, Australia, Canada, and the United States have more extensive exposure to equities, with the US boasting a substantial 54% of pension savings in shares.
Instead of presuming that the government knows best, Reeves would be better off examining the reasons behind pension funds' risk-averse behavior. By addressing the underlying issues facing the UK equity market and fostering a stronger domestic investment environment, she can encourage pension funds to once again view equities as a viable and profitable investment opportunity.
Elsewhere in the financial realm, Nationwide has pledged to maintain a branch network for its customers through 2028. This commitment to branch services is intended to cater to the needs of small traders, the elderly, those with disabilities, and technophobic individuals, who may find online apps challenging to navigate. This move comes after the bank completed the takeover of Virgin Money, making it the second-largest mortgage lender in the country, and potentially serving as a model for other financial institutions seeking to better serve their customers.
Finally, The New York Times has announced a deal with Amazon, under which its content will be paired with various products and services, including Alexa. By collaborating with the tech giant, the paper aims to stay ahead in the increasingly competitive digital landscape, where intellectual property can easily vanish into the void without strategic partnerships. This move serves as a reminder to industries grappling with the advent of artificial intelligence that embracing new technologies may be a crucial step towards survival.
- Chancellor Rachel Reeves' proposed solution to increase pension funds' investments in UK equities involves consolidating defined benefit assets, aiming to emulate the success of public sector union schemes and Australian superannuation funds.
- Reeves also suggests abolishing stamp duty on UK share trades as a means to encourage a greater injection of capital into domestic markets and foster a culture of investing in UK equities.
- In an effort to rectify the issue of underutilization of British savings, 17 of the nation's most significant private pension managers have agreed to allocate up to £50 billion of defined contribution funds toward the UK, with priority areas including infrastructure and start-ups.
- Pension funds' risk aversion can be traced back to stricter regulations enacted following the Maxwell pension scandal of 1991 and Gordon Brown's 1997 raid on the tax break on dividends paid into pension funds.
- Concerns have been raised about the government assuming backup powers to guide the allocation of unlocked funds to 'local investment priorities,' as this could compromise the fiduciary responsibility of trustees and undermine the free market economy of the United Kingdom.
