Government threatens pension funds with tax penalties if they don't invest in UK businesses by autumn Budget
UK pension funds have been given a stern warning: invest in British companies, or face a hefty tax bill this autumn.
A typical workplace pension pot has just 20% invested in the UK, down from a whopping 50% ten years ago. Only 8% of this is in British equities. The rest of the money goes abroad, including big US funds that have investments in tech giants like Amazon, Microsoft, and Nvidia.
The lack of investment in the UK is one of the reasons why our stock market is struggling. Baroness Altmann, former pensions minister, has urged fund managers to put more money into UK stocks, or risk losing tax reliefs at the hands of the Chancellor. This could be devastating for millions of workers who save for retirement tax-free.
Speculation is rife that Rachel Reeves will target tax breaks on pensions in the upcoming Budget to help plug the gaping hole in the nation's finances.
Altmann suggests that 25% of new pensions contributions should be invested in the UK. She questions why pension funds take taxpayer money and do nothing to boost the UK economy with it. If fund managers refuse, they won't receive money from taxpayers.
Last week we learned that Scottish Widows is reducing the allocation to London-listed shares in its highest growth portfolio from 12% to 3%.
A report by the government revealed in November that only around 20% of savings in workplace defined contribution pension schemes is invested in the UK. This compares unfavorably with domestic holdings in Canadian, New Zealand, and Australian schemes, which are at 22%, 42%, and 45%, respectively.
The lack of investment in UK stocks has been identified as a reason why so many London-listed companies are undervalued.
So, pension fund managers, are you ready to take the plunge and invest in the UK, or brace yourself for a painful tax raid?
- A significant portion of pension funds' investments are not directed towards the UK, with only 20% currently allocated, down from 50% a decade ago.
- The former pensions minister, Baroness Altmann, advises pension fund managers to consider investing 25% of new contributions into UK stocks to avoid losing tax reliefs and to support the UK economy.
- The lack of investment in UK stocks is not unique to the UK, as other countries, such as Canada, New Zealand, and Australia, have higher domestic investment, at 22%, 42%, and 45%, respectively, in their pension schemes.
- The undervaluation of many London-listed companies could be a consequence of the lack of investment in UK stocks by pension funds, suggesting an opportunity for growth in this area if funds choose to invest domestically.
