Just 4.2 per cent of listed UK shares are owned by pension and insurance funds— the lowest proportion on record according to new data from the Office of National Statistics.
The proportion of pension fund assets invested in UK shares has declined significantly in recent decades. Today’s figure is in stark contrast to ONS data from 1997, when the two sectors held a combined 45.7 per cent of UK quoted shares.
The ONS said this downward trend was caused by several factors, including companies expecting more profitable returns from overseas shares, as well as changes in pension fund regulations.
Analysis by actuarial consultants, OAC, part of the Broadstone Group also pointed out that between 2020 and 2022 UK trust-based pension funds investment more into direct equity investments in the US than the UK, with an additional £8bn invested in the US by the end of 2022. This data is from the ONS Financial Survey of Pension Schemes .
This decline comes despite efforts in recent years by the government to encourage It pension funds to increase their allocations to UK shares, as well as boosting investment in unlisted equities and ‘productive finance’.
OAC head of insurance consulting Cara Spinks says: “Since the 1990s, pension and insurance companies have divested significant capital allocations out of UK shares.
“It in part reflects regulation which encouraged pension and insurance funds to transfer into investment products like corporate and government bonds, but also the better returns that have been on offer from the US stock market.
“With UK stocks continuing to underperform, it is perhaps unsurprising that these companies which have a fiduciary duty to protect their members’ savings have shifted capital away from UK shares.
“The Chancellor and the Prime Minister appear committed to re-invigorating this sector’s investment into UK business and infrastructure so it will be interesting to see whether their efforts – and presumably that of a Labour government if elected in the next year – will shift the dial.”