If we want to encourage pension savers to back Britain, we should reward them for doing so, says Michael Healy
In two weeks, the Chancellor will finally put pension savers out of their misery and reveal just what kind of raid she’s planning. Much of the backlash has focused on reports of cuts to the tax-free lump sum or higher National Insurance on salary sacrifice. Both would penalise responsible investors at a time when the UK desperately needs more, not less, investment for the future.
Another, less-discussed policy gaining traction is a potential mandate forcing pension schemes to hold a set proportion of their assets in UK equities. Such a move would gain some support – LSEG boss David Schwimmer recently noted that a 25 per cent UK allocation in defined contribution schemes could inject up to £100bn into the domestic market. It’s a tempting headline, but it carries real risks for savers.
On the face of it, the idea seems patriotic – directing more pension money into UK companies. In reality, it would be a serious misstep. Forcing savers to back domestic firms would risk weaker retirement outcomes, undermine confidence, and damage the voluntary investing culture the Chancellor says she wants to foster. Moral failingh
Moral failing?
Yes, UK pension funds have relatively low exposure to domestic equities. But this simply reflects the UK’s global market share and the long-term trend towards diversification, not a moral failing by fund managers. Mandating UK investment misses the bigger point. The problem isn’t that investors have turned away from Britain out of disloyalty. It’s that the UK market hasn’t been growing fast enough to draw them in. The government shouldn’t be forcing people to back the UK, it should be making the UK worth investing in again. A truly successful market is one where domestic participation is high because investors want to be involved, not because they’re told to be.
The £100bn figure shows why a mandate might look appealing at first glance. But compulsory investment could leave many savers feeling overexposed to the UK against their will, which in turn risks dampening enthusiasm for investing in UK companies through other routes. Confidence is built by giving choice, not taking it away.
There’s also a better way to encourage pension savers to back Britain – reward them for doing so. Rather than mandating UK equity exposure, the government should require every pension provider to offer a UK-centric fund option – one that comes with an extra incentive, such as enhanced pension tax relief on contributions. That would nudge people towards supporting domestic companies while leaving choice intact, empowering investors rather than cornering them.
If the Chancellor genuinely wants to make the UK more attractive for investors – institutional and retail alike – she should start with the simplest reform of all and abolish stamp duty on UK share purchases
If the Chancellor genuinely wants to make the UK more attractive for investors – institutional and retail alike – she should start with the simplest reform of all and abolish stamp duty on UK share purchases. This outdated tax adds friction to every transaction and makes UK equities instantly less competitive versus global peers. Removing it would send a clear message that Britain wants to reward investment in its own companies, not penalise it.
The UK should aim to make its markets so dynamic and rewarding that capital chooses to stay here. Forcing pension money into domestic shares might deliver a short-term sugar rush, but it won’t solve the underlying problem. We should focus on policies that make investing in Britain an opportunity, not an obligation – this is the only way to rebuild the UK stock market and create the retail investment culture that the Chancellor craves.
Michael Healy is UK Managing Director, IG