Pension funds have “abrogated their responsibility” to the UK over the past 25 years and should prepare to disclose how much of their cash goes into British firms, one of the UK’s top investment banks has said, after Jeremy Hunt revealed plans for a sweeping shake-up of rules ahead of the budget on Wednesday.
In a note to investors today, London-listed investment bank Peel Hunt called on the FCA to implement rules that would force pension funds to disclose the geographic mix of their investments and told pension money managers to begin getting their houses in order ahead of the change.
The calls come after the Chancellor revealed plans for a major shake-up of rules ahead of the budget over the weekend that would see money managers forced to publish the make-up of their investments.
Under the proposals, underperforming schemes would also be banned from taking on new members in a bid to accelerate consolidation of the UK’s sprawling pension industry market.
The measures are seen as a means of encouraging domestic pension funds to back the British stock market after a drop-off in investment over the past two decades. Just four percent of the British stock market is now held by pension funds, down from 39 per cent in 2000, according to the think tank New Financial.
In a note to investors this morning, Peel Hunt’s head of research, Charles Hall, took aim at funds and said they had a responsibility to back the stock market.
“Pension funds have largely abrogated their responsibility to the UK over the past 25 years,” Hall said. “There are several reasons for this, including risk aversion, tax position and companies’ desire to offload their schemes. Pension funds used to be core investors in listed companies and specifically UK equities, but the latter has diminished from 44 per cent in 1998 to 4 per cent currently.”
While the FCA has set a timeline of three years for implementation, Hall called on funds to begin preparing for the changes now.
However, Hunt’s plans faced some resistance over the weekend from regulators. The FCA has reportedly refused to commit to writing new rules because there was no evidence that consumers or markets were being hampered by the current framework, the Financial Times reported.
The calls are also likely to unsettle some pension industry figures who have claimed that pension fund managers have a responsibility to their members rather than the health of the UK stock market.
One pension boss told City A.M last year that “it doesn’t make any sense to try and wind back to some anachronistic 90s situation where all UK pension funds were investing in UK companies.”
Prior to Hunt’s plans last week, the boss of the UK’s biggest private sector pension scheme, the £73bn Universities Superannuation Scheme (USS), also cautioned ministers over plans for reform.
Carol Young, chief executive of the £73bn Universities Superannuation Scheme, said she would have no problem with disclosures but would have “cause for concern” if ministers were to direct trustees as to where funds should be allocated.
“There’s no question that the primary purpose of [pensions] is to deliver in the members’ best financial interests,” Young told the Financial Times.
