Pension funds reject UK Plc proposal to get savers into local stocks

By Tommy Reggiori Wilkes and Charlie Conchie

LONDON (Reuters) -Proposals from the London Stock Exchange Group and more than 100 British business executives to get pension funds investing more into UK stocks are ignoring the interest of savers, the pensions industry told Reuters.

More than 100 executives including the chairs of Anglo American and Barclays and the CEO of Compass Group wrote to Britain's finance minister last week urging action to reverse the decline in buying domestic shares. They said it was depriving companies of cash, exporting wealth creation and damaging economic growth.

In response, they proposed that defined contribution pension schemes ensure default funds - the funds that pension savers are automatically invested in - put a minimum 25% of their assets into UK investments across asset classes. Savers would continue to be free to opt out and choose alternatives.

Zoe Alexander, executive director of policy and advocacy at industry body Pensions UK, said schemes were already seeking out UK investments with attractive risk-adjusted returns.

"Going further by requiring a proportion of default fund assets to be invested in UK would introduce significant risk to investment returns. Somehow, the interests of the saver are being lost in this debate," Alexander told Reuters.

Incentivising UK asset ownership has become a key objective of governments to revive growth. But many warn against mandating how they invest, a power the government has in reserve.

UK pension funds hold 4.1% of their equity investments in UK-listed companies, against 53% in 1997 and a global average for defined contribution funds of 13%-plus, according to the letter, authored by LSEG's chairman, Don Robert, and CEO David Schwimmer.

Their proposal, if enacted, would increase overall investment in UK equities by between 76 and 95 billion pounds ($127 billion) by 2030, they said. 

LSEG declined to comment. Britain's finance ministry did not immediately respond to a request for comment.

Past regulations have been blamed for encouraging some schemes into government bonds and out of stocks. 

But investors say the appeal of overseas markets has played a role too. The U.S. S&P 500 has soared nearly 500% since 2010; Britain's FTSE 100 80%.

The Association of British Insurers' Yvonne Braun said in response to LSEG's proposal that investments should not be influenced by external pressures and savers "must be at the heart of all policy decisions".

($1 = 0.7451 pounds)

(Additional reporting by Phoebe Seers; Editing by Alexandra Hudson)