(Bloomberg) — Chancellor of the Exchequer Jeremy Hunt is considering plans to spur pension funds to boost investments in UK assets, part of government efforts to lift economic growth and help Britain’s struggling equities market.
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Hunt is reviewing options including requiring pension funds to disclose their allocations to different UK asset classes, and launching an independent review to determine an appropriate threshold of UK asset allocation for pension pots, according to two people familiar with the matter, who spoke on condition of anonymity about plans that haven’t been finalized. The proposals could be revealed at the budget on March 6, they said.
Hunt is trying to encourage pension funds to deploy more of their capital in a way that boosts the domestic economy, as the government seeks to increase growth in the wake of a recession at the tail end of 2023 and ahead of an election expected later this year. He already had some success at his Mansion House speech in November when nine of Britain’s largest pension providers agreed to commit to allocating 5% of their assets to growth companies by 2030.
“We remain committed to growing the economy and increasing investment in UK businesses,” a Treasury spokesperson said in a statement. “Already the Mansion House Reforms have encouraged pension funds to reach 5% investment in unlisted equities, unlocking £75 billion to grow the economy and increasing returns for pension savers.”
UK pension funds have been reducing their exposure to British equities over the past 25 years, withdrawing £400 billion ($505 billion) of demand over that period, according to a report last year by the New Financial think tank. Since 2000, the share of the UK stock market owned by UK pensions and insurance companies has fallen to 4% from 39%, the report said.
The shift in pension fund investment has been one of the contributors to the weakness of the UK equity market, which has seen continued outflows in recent years. Policymakers are concerned that Britain’s weak equity market is linked to low investment rates and the country’s sluggish productivity growth.
Read More: Why UK’s Once-Vibrant Stock Market Is In the Doldrums: QuickTake
Another option Hunt is considering to boost equities is a so-called British ISA, a tax-free savings account for investing in British stocks. Hunt said earlier this month that he is “very attracted” to the idea, and the proposal could feature in his Budget next month.
(Updates with Treasury comment in fourth paragraph.)
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