MPs pension fund invests just three percent in UK shares as calls grow for domestic backing

Politicians have been criticised for the reluctance of their pension scheme to invest substantially in UK companies after it was revealed that less than three percent of its equity portfolio is allocated to domestic shares. The parliamentary contributory pension fund, worth £855.5 million, had only £12.8 million invested in UK stocks by the end of March, compared with £462.3 million in global equities, according to its most recent annual report.

By contrast, the average private sector defined benefit scheme in the UK keeps around twelve percent of its equity holdings in domestic companies, research from the Pensions Policy Institute shows. The disparity between public and private sector practice comes at a time of intense political pressure to increase investment in the London stock market. Labour’s general election manifesto promises to drive greater pension fund investment in UK assets, while the Chancellor has made pension reform a key component in efforts to strengthen economic growth and support British businesses.

Baroness Altmann, former Conservative pensions minister, commented that the scheme’s overseas focus demonstrates a lack of leadership in supporting UK enterprise. She noted that if parliamentarians themselves have so little confidence in home-grown companies and markets, it raises serious questions about how the government expects private investors or foreign institutions to back the British economy.

While only three percent of the MPs’ equity portfolio is in UK shares, the fund as a whole has about twenty two percent of its assets in the country via other investments such as corporate and government bonds, property and infrastructure. The fund intends to introduce a new UK-focused investment in an upcoming update to its strategy.

Peel Hunt, the City investment bank, has argued that the MPs’ pension scheme could set an example for other institutional investors by increasing its commitment to UK equities. The bank’s research found that at its 2017 peak the fund held approximately £130 million in domestic shares, indicating it has significantly reduced its exposure since then. Charles Hall, head of research at Peel Hunt, stated that an abundance of capital exists in the UK, but much of it is invested abroad, and emphasised the need for British funding to support domestic companies in order to foster national prosperity.

The trustees of the parliamentary pension fund include senior cross-party politicians such as Dame Meg Hillier, Chair of the Treasury select committee. Sir Jeremy Hunt, former Chancellor, noted that the low UK allocation in the MPs’ own pension fund undermines government efforts to boost domestic investment. Torsten Bell, the Pensions Minister, affirmed the expectation for all schemes to consider further investment in UK assets, especially as the FTSE has reached record highs and London has gained momentum among global listings.

The government has introduced reforms aimed at channelling more pension savings into UK businesses and infrastructure, targeting an increase of over £50 billion for the economy by 2030 and aiming to grow pension pots for retirees. As part of these reforms, major defined contribution pension providers have voluntarily agreed to allocate a minimum of five percent of their portfolios to UK private markets by 2030. The Treasury expects these combined initiatives to significantly strengthen the domestic economy over the coming decade.