Over 250 business leaders in the UK have urged Rachel Reeves to leverage the upcoming Budget to redirect surplus pension funds towards domestic firms, potentially boosting private investment by up to £95 billion.
In a letter to the Prime Minister, these executives highlighted a pressing issue: pension investments in British companies have plummeted from 53% of total holdings in 1997 to a mere 4% today.
The letter, signed by representatives from various sectors, including major pharmaceutical, financial services, and health insurance companies, suggests that the Labor government should mandate pension fund managers to allocate at least 25% of their portfolios to UK shares, aiming to counteract decades of overseas investment.
Mr. Reeves is anticipated to unveil several measures to stimulate investment during his Budget announcement on November 26.
Additionally, the Prime Minister has already shown support for initiatives like the Sterling 20 and the Mansion House Agreement, both of which aim to promote infrastructure projects at local and national levels.
Under the Mansion House Agreement, fund managers such as Aviva, Legal & General, and M&G have committed to investing at least 10% of workplace pension assets into private markets by 2030.
However, the coordinated letter, backed by the London Stock Exchange Group and signed by executives from firms like Revolt, JD Sports, and Barclays, calls for more aggressive action.
The report advocates for mandatory changes that affect all defined contribution (DC) pension schemes, which are prevalent among employers and manage about £200 billion in assets.
“We encourage you to be bold,” the authors suggested, proposing that the Chancellor enforce a minimum 25% allocation to UK assets within default funds, making it necessary for individuals to opt out if they prefer otherwise.
“This policy would align the default level of pension investment in the UK with that of our global counterparts,” the letter asserts. “This shift would provide businesses with access to deeper and more stable capital sources within the UK.”
The letter estimates that by 2030, DC pension investments in UK equities could rise by approximately £76 billion (a 230% increase), possibly reaching £95 billion.
Moreover, the authors expressed confidence that Mr. Reeves could gain public backing for the proposed changes.
“Taking action will resonate with public sentiment. A recent poll showed that people believe around 41% of their pensions are invested in British companies or the UK stock market, a figure that is tenfold the current investment level.”
“Additionally, 72% of respondents support government measures that encourage domestic investment through the pension system.”
The letter notes that individuals could opt out of this scheme by asking for their pension contributions to be redirected from the default fund.
Current investment trends indicate that this could be an appealing option for retail investors seeking better returns on their assets.
Recent statistics reveal that investors invested £10.5 billion in offshore bonds over the year leading to June, up from £5.1 billion the previous year, as per data analyzed by the Financial Times.
Financial advisors have mentioned concerns regarding higher capital gains taxes, particularly as affluent individuals look to funnel their investments into tax-efficient bonds through jurisdictions like Ireland, Luxembourg, and the Isle of Man.
