One of Britain’s biggest pension schemes has slashed the amount of UK shares it holds, a blow for Jeremy Hunt and his hopes to trigger a ‘Big Bang 2’.
New figures reveal that BT’s £39bn Pension Fund has reduced its exposure to London-listed shares from £300m last year to £100m – or 0.3pc – of assets. Investments have fallen from £300m in 2010 to £3.6bn last year.
BT’s scheme, which has around 270,000 members, is the largest in London’s blue chip FTSE 100 index.
The decision of the pension fund , to reduce its holdings in British equities, is a blow for the Chancellor’s ambitions to spark a new “Big Bang” in the City through encouraging retirement savings managers in the UK to invest.
Mr Hunt’s commitment to a number of banking reforms, which are designed to reduce red tape, has drawn comparisons to Margaret Thatcher’s overhaul of The Square Mile.
Former pensions minister, Baroness Ros Altermann, also condemned the failure of BT’s pension fund to support Britain.
Baroness Altmann stated: “It is an outrage that the British economy does not benefit from a large pension fund. This is especially true for one that has been backed to some extent by the Government, and which receives a substantial amount of funding by taxpayers.
If you do not have long-term domestic funding to support your economy, even if you think you will get a higher return by investing abroad, you are actually impoverishing the domestic base of your country. This means that your members’ retirement is going to be poorer because they are living in a less developed country.
Nick Delfas of Redburn said BT’s paltry domestic holdings “jumped out” and urged policymakers take note.
Baroness Altmann urged MPs to do even more to encourage pension funds to invest in Britain . She said that this was vital for economic growth.
She said: “I think we have lost the plot on what a retirement fund is supposed to achieve… It’s time we help pension funds understand there is a duty that comes along with tax relief.”
According to a BT spokesperson, the pension scheme is reducing its exposure in equities. This is part of a risk-reduction strategy. The scheme has a high level of maturity, with an average age of 68 for members.
The overseas equity in the scheme has also seen heavy losses. Its value fell by 75pc, to £1.7bn.
The fund’s small holdings of UK stocks, however, highlight the FTSE 100’s declining status among its global competitors. Paris surpassed London as Europe’s biggest stock exchange last year.
John Ralfe is a pensions specialist who said, “The UK is a very small stock market.”
The chaos that hit the financial markets in September is believed to have contributed to a 66pc drop in UK stocks held in BT’s pension fund.
Margin calls were triggered by a sharp drop in the value of government bonds following Liz Truss’ mini-budget. These products are called liability driven investment (LDI) and are popular among pension funds.
The Bank of England had to intervene with a shocking PS65bn to ease the crisis. This forced many pension funds into selling assets quickly to meet margin requirements.
BT’s pension funds assets have dropped by an estimated PS11bn as a result the crisis. It is now down nearly £15bn from 2022.
Analysts have also expressed concern about the large proportion of illiquid assets that the BT Pension Scheme holds. According to Redburn, only 65pc is left of the asset base after last year’s sale.
Illiquid assets can be riskier because they are more difficult to sell and to value.
The announcements come days before the Work and Pensions Select Committee is scheduled to start an investigation into defined benefit pension plans amid concerns that last year’s financial crisis revealed weaknesses in governance and regulations.
Wyn Francis is the chief investment officer at Brightwell, which manages BT’s pension scheme. He said that the BT Pension Scheme invests 64pc of their total assets in UK gilts and corporate bonds.
As a mature pension plan, it has been on a path of de-risking so the allocation towards equities is steadily decreasing for many years.
“Offsetting that, the scheme is increasing its exposure to UK through investments made in corporate credit and direct lending as well as infrastructure, income-generating properties, and direct lending.”