British companies will have to increase contributions to pension funds, which are “woefully inadequate”, to boost profits for savers and bring money back to the beleaguered London stock market, he said. top think tank said.
Think tank New Financial called for a “restructuring” in a new report today, in partnership with Abdon and Citi. [of] In an “essay question,” he discussed how to revitalize London’s markets, arguing that the UK needs to think about ways to better benefit savers, rather than just letting money flow into listed companies.
The call comes at the height of a heated debate on Square Mile over how to get more retirement money into domestic companies after pension fund holdings of UK PLCs have plummeted over the past two decades. I woke up inside
Pension funds now hold just 4% of the UK stock market, down from 39% in 2000, according to New Financial.
Focusing on increasing contributions to pension pools and increasing participation in pension schemes will be central to improving earnings and a depressed market, the think tank said in today’s report.
“The minimum defined contribution pension contribution is 8% of eligible earnings.” [DC] Pensions are woefully inadequate compared to other countries,” New Financial chief William Wright said in a report.
“It’s also unfairly skewed towards individuals rather than employers and probably needs to double down in the long run.”
Contributions to the DC Pot are currently 8%, of which 3% is accounted for by employers and the remaining 5% by employees.
among others long list of recommendationsNew Financial has called for that figure to rise to 12%, with employers paying more. The UK is one of the few countries where workers pay more money for their pot than the company they work for.
New Financial said it also needed to improve pension coverage and consolidate a fragmented UK market to boost earnings and get more money into businesses, adding: “No matter what. It is also necessary to move away from the focus of “at cost”.
Sir Steve Webb, former Pensions Minister and partner at Lane, Clarke & Peacock, said: City AM Leveling the playing field for contributions from employers and employees has proven to be key to increasing the size of the fund and ultimately increasing the amount available for investment.
“Many people might think that 8% was set because it was the ‘right answer’ for how much people needed to save. But really, at the time, it was a compromise between how much employers would agree to and how much the government could demand from workers,” he said.
“There is no doubt that the first step is to equalize the contribution rate between employees and employers. There are few countries in the world where employees pay more than employers, as in the UK.”
The call comes on the heels of Abrdn Chief Executive Stephen Byrd calling for pension contributions to be doubled to 16% in a bid to increase the flow of money to pensioners and UK businesses. But the SME Federation rejected the call, saying it would place a greater burden on small businesses.
Pension cash has flowed out of UK listed companies and into safer bond holdings since tax adjustments introduced around 2000 forced companies to pass pension liabilities onto their own books.
Capital flows coincide with flattening stock market growth while international peers are booming.
In the decade to end 2022, the total value of the UK stock market was flat at £2.6 trillion, while the value of the US market exploded by 67% in real terms.
The weakness in the UK initial public offering market has been attributed in part to the lack of equity investment from the UK pension scheme.
In a letter to the Prime Minister in March, the Capital Markets Industry Task Force, led by the head of the London Stock Exchange, said: Julia Hoggett summons Prime Minister Jeremy Hunt Push reforms to get money into UK equities, including rolling out a wave of consolidations.