ONS report on pensions

ended 23. June 2022

IFAs: is this report published this AM interesting? If so, what are your thoughts? It shows, for the first time, which geographies funded occupational  pension schemes are investing in and the US (equities especially) appears to rule supreme. Any thoughts, jot them down. Deadline is 11am but the sooner the better. Key points:

  • At end-Quarter 4 (Oct to Dec) 2021, 55% of overseas direct investment holdings in long-term debt securities and 54% of overseas equities were from the United States.
  • At end-Quarter 4 2021, 75% of direct investment in equities were overseas, whereas 7% of direct investment in central government bonds were overseas.
  • Active membership of private sector defined contribution schemes increased by 200,000 members from 30 September to 31 December 2021.

2 responses from the Newspage community

"Whilst it's helpful to have this information, the actual results aren't too surprising. Defined Benefits (DB) schemes would be expected to have a high long-term debt holding as they use lower-risk assets to balance their liabilities. Consequently, this is reflected in the figures. Arguably one of the more interesting figures is that schemes only have 54% of overseas equities in US equities. This is actually quite an underweight position given that the USA represents 68% of the MSCI World Index.
All hail the tracker. 75% of equity investments being held in overseas equities is reflective of the extensive use of tracker funds by the pension industry. US equities form the majority of any global equities tracker, for example the MSCI World Index was 68% invested in US Equities during May. Why is this? Well when it comes to equities the US literally does “supersize me”, with Apple, Microsoft, Amazon, Alphabet and Tesla to name but a few. Rather than ‘when America sneezes, the world catches a cold’, the risk is that UK pensions may in fact catch hypothermia with their current rates of exposure. It's perhaps just as well the US is not suffering from a cost of living crisis, too. An interesting side story is the ongoing decline of DB membership as members transfer out or die versus the growth of DC schemes. Private sector employee and employer contributions reflect the rise in employment levels, but could there be a storm brewing? Contribution growth could rapidly reverse if the cost of living crisis results in redundancies. We may also see the tightening of household budgets result in members choosing to reduce their contributions or even opt out.