Our chance to fly the banner of pensions, says RUTH SUNDERLAND

If our pension funds refuse to invest in UK equities, it is not surprising that companies here are rejecting the stock market, says RUTH SUNDERLAND

  • British pension funds have an aversion to British equities
  • The UK has one of the most developed pension systems in the world
  • But when it comes to mobilizing to get the economy going again, we seem paralyzed

Some crises erupt, such as the collapse of the banks in recent days. Others are slow burn, such as the fall in the status of the UK stock market.

Here’s a striking figure. The market value of US giant Apple, at just under £2 trillion, is close to that of the entire FTSE 100 blue chip stock index.

It illustrates in a nutshell how, compared to Wall Street, the UK stock market is unloved and undervalued. Stalwarts of the Footsie like BP, GSK and BAE Systems look, in the words of one fund manager, “insanely cheap” compared to their US counterparts.

But suggestions that the UK is a pariah market, frowned upon by everyone, are very overcooked. Nor is the US, where several big names are planning to vacate, any kind of corporate nirvana, even for tech companies.

The debacle at Silicon Valley Bank, First Republic et al is testament to that.

Are you flying the flag?: British pension funds have an aversion to British equities

As for the higher valuations that can supposedly be achieved in the United States, they are often a chimera, as we reported yesterday in The Mail on Sunday.

Figures from the London Stock Exchange show that the majority of UK companies listed in the US, including fashion group Farfetch and Soho House’s parent company, have seen their shares fall. On average, they’re down nearly 40% since float.

Are entrepreneurs like Matt Molding, the founder of online shopping company THG, or Will Shu of Deliveroo really victims of a crass, ungrateful city that would have done brilliantly if they had been listed in the US?

That idea should be taken metaphorically with a pinch. While the perception of London as a market in crisis is unfair, it exists and threatens to become a self-fulfilling prophecy.

A big problem is that British pension funds have an aversion to British equities.

Another surprising statistic: by 2021, the Canada Pension Plan invested more in one UK company, Octopus Energy, than the entire UK pension system invested in private equity and growth capital. Old-style final salary pensions have transitioned to gilding as administrators look to reduce risk.

But as final pay plans decline, defined contribution plans are growing and will continue to grow through auto enrollment.

This is a great opportunity for individuals to support UK business and fund economic growth through their retirement savings. Local authority pension schemes can also provide hundreds of millions of pounds to support the UK economy.

What else can be done? The government needs to speed up its planned reforms to Solvency II capital rules to free up pension funds to invest in UK infrastructure and growth capital. Smaller pension schemes should be encouraged to work together so that they can take on more risk in the hope of a higher return.

The deletion of the lifelong benefit in the Budget sends a positive signal about pension savings. Pension funds routinely have environmental and social mandates: as part of that, why not recruit members to see if they want to use money for productive investment in the UK.

The current position is absurd. The UK has one of the largest savings and most developed private pension systems in the world. But when it comes to mobilizing to get the economy going again, we seem paralyzed.

If our own pension funds refuse to invest in British equities, it is not surprising that companies here reject the stock market in favor of New York or Amsterdam.