Pension Funds Urged To Boost Investment In UK Equities For Economic Revival

Pressure is mounting on the government to compel defined contribution pension schemes to increase their investments in UK equities, as concerns grow over the future of Britain’s stock market and domestic economic growth. A recent report, backed by leading British asset managers and investment banks, recommends that workplace pension schemes allocate between 20 and 25 per cent of default equity investments to UK-listed companies, moving away from a purely global market-weighted approach. This strategy aims to inject up to £95 billion in additional investment into London-listed shares by the decade’s end, according to projections from New Financial and the Capital Markets Industry Taskforce.

Support for such a change appears to be strong among savers. Two thirds of the 1,000 pension contributors surveyed expressed that pension funds should prioritise more UK shares, even if it means accepting potentially lower returns than those available in overseas markets. The majority of savers remain in default investment strategies, making any adjustment to these allocations highly impactful across the sector.

At present, UK equities make up less than 9 per cent of equity investments for defined contribution pension funds and just 4.9 per cent of their overall assets. By contrast, non-UK equities comprise 52 per cent of their holdings. The decline in domestic investment has been stark over the past 25 years, with allocations to UK shares dropping from more than half of all pension scheme assets to just over 4 per cent. This shrinking demand for UK stocks has contributed to depressed share valuations, increased takeovers by private interests, and a reluctance among private companies to float in London.

Ministers are looking to overhaul pension regulations, signalling an intention to use new legislation to require pension funds to hold more UK assets. The Department for Work and Pensions has highlighted that its reforms are designed to unlock billions for the local economy, support business growth, and provide greater security and potential gains for savers. Proponents argue that reform could boost the average pension pot by as much as £29,000, encouraging funds to work harder for their members without mandating explicit asset allocation. Critics, though, note the involvement of financial institutions who may benefit from such changes.

Analysis from the Department for Work and Pensions earlier this year indicated that almost 40 per cent of the workforce is already under-saving for retirement. Projections suggest that unless action is taken, future retirees could find themselves with lower private pension incomes than those retiring today. If the current trend continues, UK equities could fall to just 3.5 per cent of pension fund assets, deepening the market’s troubles and harming long-term savers.

As the debate continues, the government’s next steps will be critical. Balancing the interests of pension savers, the health of UK equity markets, and the stability of the broader economy remains a complex challenge for policymakers, asset managers, and pension holders alike.