The tragedy of British pension funds is that their holdings of UK equities have dwindled to negligible levels.
The allocation to UK shares has fallen from some 53 per cent in 1997 to a pathetic 4.4 per cent now.
Not only have values on the London Stock Exchange been suppressed but it has also enabled overseas and private equity plunderers to spirit away some of Britain’s most promising enterprises such as smart chip pioneer Arm Holdings.
Chancellor Rachel Reeves correctly has diagnosed that the biggest pots of savings in Britain are not working in the national interest.
She has persuaded 17 of the biggest UK private pension managers to allocate up to £50billion of defined contribution funds to the UK, with infrastructure and start-ups the priorities.
In the latest move, designed to replicate the investment success of Canada’s public sector union schemes and the Australian superannuation fund, she wants £1.3trillion of scattered defined benefit assets held by local authorities and others to be reorganised into several mega-funds.
Pensions grab: Chancellor Rachel Reeves wants to see some £1.3 trillion of scattered defined benefit assets held by local authorities and others to re-organise into several mega-funds
That could slash costs and make it easier to back UK projects. All fine and dandy – except the Treasury has now disclosed it would seek back-up powers to ensure unlocked money is directed into ‘local investment priorities’.
The notion of Government dictating where people’s life savings are invested would be a horrendous error.
It would undermine the fiduciary duty of trustees to secure the best returns and betrays the choices offered by Britain’s free market economy.
Far better if, instead of thinking Government knows best, Reeves looked at why pension funds are so risk-averse.
Over-regulation after the Maxwell pension scandal of 1991 caused managers to favour safe assets, notably Government bonds, over equities.
The switch from UK share investment to overseas assets and gilts was exacerbated by Gordon Brown’s 1997 raid on the tax break on dividends paid into pension funds.
Reeves’ priority should be to invigorate UK equities. She could abolish stamp duty on UK share trades, which places British investors at a disadvantage.
The Australian, Canadian and US pension funds all have far larger exposure to equities. In America, where equity culture is strong, 54 per cent of pension savings are held in shares.
In Australia, some 24 per cent (six times the UK) is invested in local equities. Before these big battalion investors expose themselves to infrastructure and start-ups they should prioritise existing quoted entities.
The first objective should be to recreate an equity culture. There is no shortage of private equity, hedge fund, family offices and national wealth funds ready to back infrastructure and start-ups.
Branching out
Our high street banks could learn from Nationwide.
As commercial banks require people to travel ever further for branch services, or to find a working ATM, Debbie Crosbie is pledging to keep a busy branch network intact until at least 2028.
The need is particularly important among small traders, the elderly, infirm and technophobes who find navigating online apps frustrating.
A one-off payment to members at a cost of £615million will be some compensation to customers who, paradoxically for a mutual, had no say in the takeover of Virgin Money, which makes Nationwide the second-biggest mortgage lender.
A 30 per cent rise in profits to £2.3billion, with only a minimal contribution from Virgin, suggests more to come.
The jury is still out on the deal, with new write-downs possible. Systems and people integration are far from over.
Nationwide’s re-entry into business banking, building on Virgin Money’s operation, must be a good thing.
Smaller enterprises and start-ups need all the help that can be mustered.
Intelligent choice
The New York Times isn’t waiting to see its intellectual property disappear over the horizon in the great AI scam.
It has a deal with Amazon where its output will be paired with products and services such as Alexa.
Better to be part of the AI revolution, rather than shout from outside the tent. It is a lesson the music industry learned when Spotify invaded.
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