What caught my eye this week.
A decade ago the UK was still riding the glow of the 2012 Olympics. The country felt energised on the global stage, attracting talented people from across Europe and nurturing a start-up culture in London that offered a credible alternative to moving to Silicon Valley.
There were problems then, of course, but it was easy to feel fortunate to live here.
For every forward step there often follows a counter-reaction. In the years that followed, politics and policy choices have pushed the UK down a more difficult path.
Across the Atlantic, the United States fell into a polarising political era. At home, a slim majority of British voters backed Brexit, a decision with consequences that have become increasingly clear.
The economic effects of leaving the EU have not been explosive but persistent: weaker investment, slower growth, more fraught politics, and a renewed risk of higher inflation.
Cost of Brexit: estimates suggest more than £100 billion a year in lost output. That long-run hit matters.
All of this is worrying enough — and now some policymakers and influential voices are suggesting we should tap pension funds to prop up the UK economy. That idea deserves careful scrutiny.
London’s recent struggles
There’s been growing concern about the state of the London Stock Exchange. The LSE has struggled to attract major new listings: recently, ARM chose to float in New York despite political pressure. Other UK-headquartered companies are moving their primary listings overseas, and London’s market capitalisation has been overtaken by Paris for the first time in the data set used by Bloomberg.
Beyond headline tech listings, important infrastructure like euro-denominated banking and clearing services moved to the EU after Brexit, eroding some of the City’s traditional strengths.
Those who celebrate London’s decline overlook that the City supports high-value jobs, tax revenue and economic activity across the country. Reducing the capital’s financial strength has knock-on effects for public services and the wider economy.
Why raiding pensions is a bad idea
Faced with this slow deterioration, the obvious policy response is to make the UK more attractive to international capital again. That would mean stabilising politics, improving regulatory clarity and rebuilding investor confidence — not coercing investment decisions.
There have been small steps in recent years, such as the Windsor Framework for Northern Ireland, but reversing the broader economic damage from Brexit would require much more substantial rapprochement with the EU. The politics may be difficult, but the economic case for closer ties remains persuasive.
Instead of pursuing those remedies, some voices are calling for pension funds to be compelled to invest more heavily in UK companies and infrastructure. Proponents point to the decline in equity allocations in UK pension funds — a change that has led critics to say there are “trillions” of pounds idle when they could be deployed to support domestic growth.
The proportion of UK pension fund assets held in equities fell from 55.7% in 2001 to 26.4% in 2021, according to OECD data. By comparison, Canadian and Australian funds have maintained higher equity allocations.
“We have trillions of pounds sitting in pension funds that are not being used to invest in companies, drive growth or do a whole range of things that the economic viability of the country depends on,” says one senior figure. “We need to find ways to release this capital.”
That argument might look persuasive at first glance, but it overlooks the fundamental purpose of pension funds: to deliver retirement security for savers through prudent, long-term investing. Using pensions as a captive source of finance for domestic industrial policy risks subordinating savers’ interests to short-term political aims.
The right incentives
If the goal is to increase investment into UK assets, policymakers should focus on improving the investment environment: predictable regulation, stable public finances, and a reputation for competence. Investors respond to incentives — lower uncertainty and better returns attract capital. Compulsion and protectionist measures are poor substitutes for genuine competitiveness.
Pension fund managers who have reduced exposure to UK equities over the last two decades did so for reasons that served their beneficiaries. The UK stock market underperformed for many years, and the currency shock after the Brexit vote further complicated returns. Avoiding that market was, in many cases, the correct professional judgement.
That said, valuations and global conditions change. UK shares may be more attractive now than they were, partly because a large share of FTSE 100 earnings come from overseas and because sterling remains relatively weak. A gradual, market-driven increase in domestic equity ownership could be appropriate — but only when it improves long-term, risk-adjusted returns for pension savers.
Our pensions are not industrial policy
There’s nothing wrong with private citizens choosing to buy UK stocks in their ISAs and SIPPs. But that personal choice is very different from compelling pooled pension assets to fund national industrial strategy.
Pensions exist to provide income and security in retirement. Treating them as a wartime treasury to prop up the economy sets a dangerous precedent. If the UK wants more domestic investment, the right path is to make the country an attractive destination for capital — not to force savers to subsidise policy failures.
Have a great weekend.
From Monevator
“How I got mixed up in this FIRE business” – Monevator
When investing is boring – Monevator
From the archive-ator: Never ever respond to a cold call – Monevator
News
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UK food prices rising at the fastest rate for 45 years – BBC
Britain’s middle classes feel the pinch in cost of living crisis – FT
BoE said to be considering reform of bank deposit guarantee scheme – Reuters
Huge rent rises for council-owned allotments – Guardian
Half a million landlords to leave the sector as Boomers retire – Yahoo Finance
Record numbers of Britons making mortgage overpayments – This Is Money
Latest figures on how much you need for a comfortable retirement – Guardian
Coming soon: QR-style barcodes – Axios
London Stock Exchange set to offer Bitcoin futures and options – Reuters
How China dominates the electric vehicle market – Semafor
Products and services
11 tips to save on the cost of your subscriptions – Which
UK investors swell money market funds – FT
Swap old clothes for vouchers from H&M, John Lewis, and M&S – Be Clever With Your Cash
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
HSBC, Natwest, and RBS all offering £200 bank account switching bonuses – This Is Money
Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Here’s how much your appliances will cost to run from April – Which
Homes for people who want to downsize in style, in pictures – Guardian
Comment and opinion
The 60/40 portfolio is alive and well – Disciplined Funds
Testing flexible withdrawal strategies – Morningstar
Lump sum investing versus cost averaging – Vanguard
Planning my exit – Humble Dollar
Six tips for tackling investor under-confidence – Best Interest
Thinking fast and slopes – Dror Poleg
Accounting for home ownership in retirement (US CPI but relevant) – ERN
The mansion next door – Accidentally Retired
What if you’re not on the same financial page as your spouse? – White Coat Investor
The golden rule of investing (gold vs low-vol stocks, research) – SSRN
How well do Monte Carlo models really forecast retirement success? (Nerdy) – Kitces
Naughty corner: Active antics
A provocative perspective on healthcare from a fund manager (podcast) – FFtFP
So you want to launch a hedge fund? – Net Interest
Finance as entertainment – Jared Dillian
The real lessons of Warren Buffett – Real Returns
Doing nothing beat the S&P 500 over the past three decades – Morningstar
Secure Trust Bank looks shaky as a dividend stalwart – UK Dividend Stocks
Kindle book bargains
The Nowhere Office: Reinventing Work and the Workplace by Julie Hobsbawm – £0.99 on Kindle
Cooking on a Bootstrap by Jack Monroe – £0.99 on Kindle
Money: A User’s Guide by Laura Whateley – £0.99 on Kindle
The Missing Cryptoqueen by Jamie Bartlett – £0.99 on Kindle
Environmental factors
Tidal power’s uncertain future – Hakai
Keep your garden green and get a tax cut, suggest scientists – Guardian
(Musical) robot overlord roundup
AI-generated Drake and The Weeknd song goes viral – BBC
Is AI-generated music legal? – Semafor
A band fronted by an AI Liam Gallagher – Guardian
Fourteen reasons why AI pop won’t eat itself – FT
Bonus: winner refuses award after revealing AI creation – BBC
Off our beat
Journey into sleep (nice graphics) – Reuters
You can do it. No, really, you can – Klement on Investing
Why do mirrors flip left-and-right but not up-and-down? – Big Think
Dominic Raab forgot rule one: don’t be a massive arse – Marina Hyde
A few things learned over here that apply over there – Morgan Housel
Why do young people think jazz is romantic? – The Honest Broker
Henfluenced – Culture Study
What God, consciousness, and physics have in common – Scientific American via Pocket
How to remove a fish hook from your finger (not a metaphor) – The Art of Manliness
And finally…
“Most of economics can be summarised in four words: People respond to incentives. The rest is commentary.”
– Steven E. Landsburg, The Armchair Economist
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