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Scottish Widows, one in all Britain’s largest pension suppliers, is making ready to considerably scale back its allocation to UK equities simply as the federal government is pushing retirement funds to speculate extra in British firms.
The group, which manages £72bn of office pension belongings in its default funds, is planning to chop the allocation to UK equities in its highest development portfolio from 12 per cent to three per cent, in keeping with a doc seen by the Monetary Instances.
Scottish Widows mentioned in a separate doc explaining the change to purchasers that it was adopting a “extra globally-diversified strategy” with the purpose of “enhancing risk-adjusted returns by capturing extra development alternatives in excessive performing worldwide markets”.
The transfer by the Lloyds Banking Group-owned pension supplier offers an additional blow to Britain’s ailing inventory market, the place delistings are outpacing new preliminary public choices and there’s a gulf in valuations between UK and US-listed firms.
Ministers have been attempting to encourage pension schemes to speculate extra in British shares, following years of pension schemes promoting UK equities as they turned to extra engaging alternatives abroad whereas outlined profit schemes have additionally turned extra to bonds as they matured. The US S&P 500 index has added 235 per cent on a complete return foundation up to now decade, in contrast with 92 per cent for the FTSE 100.
In 2000, UK pension funds had close to 50 per cent of their belongings invested in home shares, in keeping with analysis by think-tank New Monetary. By 2024, it had dropped to 4 per cent.
Scottish Widows plans to chop the allocation to UK equities in its most conservative portfolio from 4 per cent to 1 per cent, in keeping with the doc. Portfolios that purpose for increased development charges are sometimes extra closely invested in equities, with bonds making up the next proportion as staff close to retirement.
Plans to decrease allocation to UK equities include plans to extend publicity to US shares. The very best threat portfolio would enhance North American fairness publicity from 46 per cent to 65 per cent by January, whereas the decrease threat portfolio would enhance US shares from 17 per cent to 25 per cent.
Scottish Widows has about 7.6 per cent of its default office pension plans invested in UK equities. It invests the next proportion of its “belongings below discretionary affect” within the UK: of the £165bn that falls in that class, £35.3bn is invested within the nation.
Chopping the proportion of its default funds invested in UK equities would deliver Scottish Widows nearer into line with a few of its rivals. Aviva’s long-term development pension portfolio has 3 per cent allocated to UK equities.
The deliberate adjustments come after Scottish Widows final month refused to signal a pledge by 17 suppliers to speculate a minimum of 5 per cent of their default funds in British personal market belongings by 2030 within the Mansion Home Accord. It was the one large UK pension fund supervisor not to take action.
Within the paperwork seen by the FT, the pension supplier mentioned its adjustments can be gradual and accomplished in December or January 2026. The deliberate allocations are described as “indicative” and will nonetheless change.
Scottish Widows informed the FT that its “new and enhanced pension proposition — Scottish Widows Lifetime Funding — takes a market weight allocation to international equities by default, according to related propositions from different pension suppliers”.
It added it could evaluation these weightings on an annual foundation and “the place applicable might embrace a house bias”.
