One of Chancellor Rachel Reeves’s few big ideas for boosting growth was to persuade pension funds to invest more of their assets in Britain. But hold on. Today, we learned that Scottish Widows, one of the biggest funds, is dramatically reducing its exposure to this country – and it is quite right to do so.
Over the last decade, the S&P 500 has delivered a total return of 235 per cent, compared with just 92 per cent for the FTSE 100
The fund managers at the Lloyds-owned Scottish Widows, which controls £72 billion of workplace pensions assets, clearly didn’t get the memo about how this was the moment to put more of their money in the UK. According to a report in the Financial Times, its pension fund is planning to cut its allocation to UK equities in its highest growth portfolio from 12 per cent to a mere 3 per cent, while in its more conservative portfolio it will be cut from 4 to just 1 per cent. In effect, if your pension is managed by Scottish Widows almost none of the money you are putting aside for your retirement will be invested in the UK. By contrast, the allocation to North America in the higher risk portfolio has been increased from 46 to 65 per cent. It clearly thinks President Trump’s United States is a far better bet.
The fund manager will no doubt get some flak for this. Last month, it was the only one of the big pension managers not to sign up to a voluntary pledge to invest at least 5 per cent of its ‘default fund’ assets in UK private market assets. It clearly has very little faith in the UK to generate meaningful returns.
It’s not hard to see why. Over the last decade, the S&P 500 has delivered a total return of 235 per cent, compared with just 92 per cent for the FTSE 100. Sure, that is history, but it is very hard to see things changing any time soon. The Labour government has already made one big tax raid on business with its increase in National Insurance charges for employers in the last Budget, and it will almost certainly raise corporate taxes in some form or other in the autumn. Higher taxes on companies means there is less money left over for shareholders, and, in turn, for the pensioners who rely on the flow of dividends to fund their retirement.
Meanwhile, the UK is stuck with stagnant growth, meaning there is very little potential for companies to expand, and there is a steady drift of companies to New York – the fintech giant Wise is the latest example.
This means the London market largely consists of a handful of retailers, banks and oil companies that are more than a century old. The job of a pension fund manager is to maximise returns for their policy-holders. That means they are completely right to get out of Labour’s zero-growth economy – and the quicker the better.
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