The Rest Is Money 141. Why Aren’t UK Pension Funds Backing Britain?
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Feb 24, 2025 In this conversation, Michael Tory, co-founder of Ondra and a veteran of the financial sector, discusses the alarming underperformance of the UK stock market and its effect on living standards. He highlights the drastic decline in British pension funds' investments, contrasting it with the successful foreign acquisitions revitalizing local firms. The dialogue also delves into necessary reforms in pension schemes and the challenges faced by funds in capitalizing on lucrative opportunities due to governmental and industry stagnation.
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UK Stock Market Underperformance
- UK pension funds shifted from owning 60% of listed shares to just 2%, impacting long-term investment.
- This shift significantly reduced capital for UK businesses, hindering growth and increasing reliance on dividends.
Pension Scheme Shift and Risk Aversion
- The shift from defined benefit to defined contribution pension schemes reduced risk appetite.
- This change, driven by government regulation, led pension funds to favor low-risk gilts over company shares.
Dutch Pension Fund Consolidation
- Holland successfully consolidated its fragmented pension system, increasing scale and time horizon.
- The average Dutch pension fund size grew significantly, improving investment capabilities.