The proportion of assets that U.K. pension funds allocate to U.K. equities has fallen to a record low of 4.4% in 2024, according to a report by think tank New Financial.
New Financial estimated that last year, U.K. pension funds had an allocation of 6.1% to domestic equities. The latest 4.4% figure is also a huge fall from when U.K. equities represented more than half of domestic pension fund assets in 2000.
In 2023, the U.K.’s previous Conservative government introduced measures to encourage greater U.K. investment from the nation’s defined benefit and defined contribution plans, as part of what was known as the Mansion House Compact.
Rachel Reeves, the current chancellor of the exchequer, has also looked for ways for U.K. pension funds to increase investment in U.K. equities, and has made such a drive a key plank of an ongoing review into the country’s pension fund landscape.
The New Financial report showed that corporate defined benefit plans allocate just 1.4% to U.K. equities; public-sector pension funds, 9%; and defined contribution plans, around 8%.
The allocation to domestic equities was found to be among the lowest of any developed pension system around the world. However, Norway, the Netherlands and Canada were found to have a lower allocation, with Reeves having recently visited the latter country to learn from the "Maple 8" consolidated pension funds.
New Financial found that the main drivers of this decline have been the derisking of private-sector DB schemes and the shift across U.K. pension plans from a “U.K. centric” approach to a global market-weighted approach to equities.
This U.K. pension funds' switch from U.K. equities was also found to have helped feed a “doom loop” of lower demand, lower valuations, and a less dynamic market.
U.K. pension funds also have a significantly lower allocation to private equity and infrastructure assets (around 6% combined) than many of their peers (Canadian public-sector pension funds 34%, Finnish pension funds 17%, and Australian superannuation funds 14%), according to New Financial.
