Proportion of UK quoted shares owned by pension funds falls to record low

The proportion of UK quoted shares that are owned by British pension funds fell to a record low of 1.6 per cent in 2022, the Office for National Statistics (ONS) has revealed.

As reported by our sister title, Pensions Age, this decline is a continuation of the downward trend seen in pension funds’ ownership of UK quoted shares, which has fallen consistently since 2008 when it was 12.8 per cent.

The highest proportion of UK quoted shares owned by pension funds was seen in 1992, when they made up 32.4 per cent.

According to the ONS, this downward trend may be caused be several factors, such as companies expecting more profitable returns on overseas shares, as well as changes in pension regulations.

One significant change identified by the ONS was the introduction of Financial Reporting Standard 17 in 2000, which required companies to calculate the surplus or deficit on their defined benefit (DB) pension schemes each year and disclose any deficit as a financial liability in their accounts.

“This may have caused company pension funds to make lower risk investments in products such as corporate and government bonds, moving away from UK quoted shares,” the ONS stated.

Furthermore, between 2020 and 2022, estimates from the ONS’ Financial Survey of Pension Schemes showed that trust-based pension scheme direct investment in UK equities was lower relative to direct investment in US equities.

“Since the 1990s, pension and insurance companies have divested significant capital allocations out of UK shares,” commented OAC head of insurance consulting, Cara Spinks.

“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.”

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