Pension Investment in UK Equities

Bobby Dean Excerpts

Tuesday 25th November 2025 Westminster Hall

[Bobby Dean (Carshalton and Wallington) (LD)]

I thank the right hon. Member for Salisbury (John Glen) for securing this debate. We are colleagues on the Treasury Committee, and I always find his contributions extremely thoughtful. He has the best interests of the country at heart, so I thank him for securing this debate.

We probably all agree that the UK investment system is broken, and not because of a lack of capital. There is £2.2 trillion-worth of capital locked up in UK pensions, and I think the consensus is that it is just not targeted well from the perspective of UK growth. We have already heard some figures cited: less than 5% of the funds are being allocated to UK assets, down from the highs of 50% in the ’90s, and that compares poorly with a lot of our international peers. Of course, there is not one way to fix this problem. Other hon. Members have highlighted other structural issues to do with regulation, culture, tax and demand for capital—people often speak to me about the need to get the pipeline of investable projects up in the UK—but mobilising these pools better through pensions reform is surely part of the solution.

UK pensions put too much into low-performing bonds and far too much into global passive indices. The effect is that funds such as the MSCI are putting more into Apple than they are into the entire UK market—I think 4.9% is allocated to Apple and 3.4% in the UK. That leads to a vicious circle, which other hon. Members have alluded to. Time and again, the UK’s best are sold to US big tech: we have heard references to Apple buying some of our best semiconductor and fintech firms, and another example is Google purchasing DeepMind. There are other factors here, including how the London stock exchange operates and the troubles with initial public offerings, which we have spoken about. However, it is worth thinking about how the role of passive indices amplifies that effect. I worry that with the advent of artificial intelligence-driven algorithms in the financial sector, it may be amplified further.

What we see is that the capital goes to the US tech giants, they buy the most innovative UK companies, that makes the UK market less attractive, and that means that UK pensions feel like they need to put more money into US companies—and the doom loop continues. I fear that unless we break the doom loop, we will see complete and utter dependence on a handful of US tech companies. All this happens while UK pension funds receive around £49 billion-worth of tax benefits, so the Government have every right to do something about this issue and act in the interests of our own country. More than that, as the right hon. Member for Salisbury noted, UK pension savers are demanding this. They expect more of their money to be put into British funds, even if it means declining returns.

I empathise with the reasons why the Government want to go down the route of reserve powers and mandation. There has been lots of talk of an industry backlash, but some funds I have spoken to say that they want much stronger guardrails in relation to any mandation. They worry about mandation being used as a substitute for the wider structural reforms that we have spoken about. They also worry about future—perhaps more interventionist—Governments, and they want a much stronger set of guardrails for mandation, if it is to come.

In place of mandation, there is a middle ground. The right hon. Member referred already to the enormous power of default settings, which we have seen with auto-enrolment. Behavioural science and behavioural economics tell us a lot more about how people actually respond; what works is not always rational self-interest and incentives. If we change the default options about UK equities and allow an opt-out, we will probably find that most people do not opt out. Research from New Financial states that a 25% allocation to the UK in these default funds could be worth up to £95 billion. That alone would be transformative, without the need for mandation.

At the moment, UK savers are losing out twice: not only because they are getting poorer returns over the long term, but because we are choking off investment in the areas where they choose to live and retire. We should keep both those things in mind.