British Pension Funds Are Divesting from UK Stocks — Should We Be Worried?

The FTSE 100 may have been on an upward trajectory for a fair while now, but Britain's own pension funds are pulling out of UK-listed companies. In a move symbolic of wider disillusionment with the London market,

Scottish Widows, for example, one of the UK's largest pension providers — has slashed exposure to UK equities in its flagship growth fund from 12% to just 3%.

A reduction down to 3% is a fairly dramatic vote of no confidence. Despite managing £230 billion worth of assets and still having around 20% of its discretionary funds invested in UK assets, Scottish Widows' decision highlights just how little confidence even domestic institutions now have in the UK's capital markets.

Many companies making a dash for alternative markets with fewer regulations such as New York.

The Mansion House Accord... Unintended Consequences?

The root of this problem may well be the Mansion House Accord — a political push to invest more pension funds in UK growth and private assets. Although the goal is to support economic growth and support British businesses, the plan hasn't been met with enthusiasm by everyone. Scottish Widows went out of its way to decline signing on to the Accord, possibly out of concern for its long-term financial obligation to retirees.

There are whispers in the City that the government will ultimately demand a minimum level of investment domestically. This kind of flies in the fact of a global pension market which wants freedom from domestic constraints as far as possible.... get out now from the UK seems to be the effect!

Taxpayer-Funded Capital Flight?

Having said that the current system is essentially allowing UK pension funds to take advantage of tax breaks — and choose to invest that money generally outside the UK. The irony: UK taxpayers are helping to subsidize the cost of capital for US giants like those in the S&P 500, rather than fostering growth at home.

There is something here which doesn't quite feel right.... British pensions funding non-British companies....

i mean I get that technically it doesn't matter if your pension is Vested in foreign countries, but surely it doesn't make any sense IF that foreign investment is harming the UK economy in the long run through a kind of opportunity cost..

Maybe the British Government's Mansion House Plan makes sense, maybe just maybe having a smaller return from British Business will be more sustainable than the current more chaotic model which could well be undermining our economic security more generally!?!

Posted Using INLEO