by Peter Curtain

Efforts are being made to tempt pension fund managers back to London equities.

That includes a Government push to make pension funds publicly disclose how much they invest in UK businesses compared to those overseas.

This could help raise company valuations, attract IPOs, boost the economy, and help restore London’s reputation as a world financial sector.

It’s nice to think UK money managers would be happy to invest in UK companies, but that’s not their job – which is to enrich the current and deferred members of their retirement schemes.

No worries – post-work people can boost economies as well as maintain their lifestyle.

UK companies have become much less attractive to institutional investors since 1997, when insurance and pension funds held a combined 45.7% of UK quoted shares. By 2022 this had fallen to 4.2%. No doubt there are many reasons, but that’s the lowest on record.

In Australia by contrast, pension funds are said to own about 38% of shares quoted on the local ASX stock exchange, fuelling company growth Down Under and boosting the economy. Clearly the ASX is smaller than the UK market, but so is the country’s pension industry. Might we learn some lessons from it?

A big stock market, comprising companies varied in size and sector, generates commercial power and creates wealth and employment, helping to ensure a healthy and resilient UK economy.

In the UK, the big challenge is the state of the financial markets rather than the structure of the pensions industry, though there are efforts to fight back, not least through increased competition.

Yet it’s interesting to look at Australia’s retirement funding regime – it invests in both local and, increasingly, international markets, and is said to be among the top five in the world.

Here’s how they do it Down Under, from my reading of Bloomberg:

  • The Government regime for self-funded retirement was set up to reduce reliance on state pension.
  • Employers contribute a portion of salary – from 3% in 1992 to 11% (capped at 12% in 2025).
  • Funds invest in capital markets, with annual returns about 8%. Most accounts have pre-selected investments across a range of assets.
  • Payouts are based on ‘defined contribution’, not ‘final salary’ – the standard used by UK public employers.
  • Superannuation (‘super’) funds dominate, though banks and asset managers run retail funds, and there are company, government and self-managed funds.
  • Means-tested government pension remains as safety net for those who don’t save enough.

Result? Australia’s ratio of pension assets to gross domestic product is 124% and is forecast to reach almost 250% by 2060. Pension fund assets are forecast to triple to as much as A$10.5 trillion by 2040, with AustralianSuper among the world top 20.

Policy makers, think tanks and of course the investment industry are mulling the many possible ways to maximise and protect retirement assets while boosting the UK’s economic performance.

Pensions should of course prioritise the financial wellbeing of their members but if they can get behind local companies to boost wealth creation, so much the better.

#pensions #retirement #funding #venturecapital #economicgrowth #equities #fundmanagement #australia

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