In response, the Society of Pension Professionals (SPP) has today published a short paper that raises a number of questions about these plans.
The paper highlights that each of the main pension providers, covering over 15 million UK pension savers, already disclose their UK investments and have done so for several years. The results confirm that those with higher UK equity weightings have typically underperformed those who have little or no exposure to the UK market.
The SPP further notes that this is reinforced by the fact that the FTSE All Share Index (made up of approximately 600 UK stocks) grew by 63% between 31 December 2013 to 31 December 2023 whereas the MSCI World Index has produced cumulative returns of 215% over the same ten-year period.
The paper also concludes that while past performance is no guide to the future, the SPP questions whether compelling schemes to disclose their investments in British businesses may contradict the Government’s focus on investment performance in its new Value for Money framework for DC schemes. If a scheme knows that investing in British businesses may produce worse returns than investing overseas, should they still invest?
Amanda Small, a member of the SPP DC Committee, said: “The SPP appreciates policymakers’ ambition to unlock capital for UK companies, but Government must be careful that a new reporting obligation like this does not inadvertently channel DC schemes’ investments into UK-centric asset classes that currently neither reflect a robust investment case or meet trustees’ requirements for diversification, sufficient risk-adjusted returns and avoidance of concentration risk.
This additional disclosure obligation will not drive the right behaviours and achieve trustees’ overarching objective, which is to provide good outcomes for members.
If the Government wants to encourage greater investment in UK companies then these companies need to offer better risk-adjusted investment returns. Ultimately this is the key driver of trustees’ investment decisions.”
The SPP paper, “Best of British?” can be read in full here
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