Budget 2024: UK Defined Contribution Pension Changes

During his Budget speech today, the Chancellor followed up on the announcement he trailed over the weekend that UK Defined Contribution (DC) pension funds must disclose how much of their funds they invest in UK equities and expanded this requirement to local authority pension funds. 

As both the FCA and the Pensions Regulator are to regulate this, it seems that the new disclosure requirement will apply to more DC schemes than just DC Master Trusts and so it may cover GPPs.

The aim behind this new policy is to bring the UK in line with international best practice. However this is only a disclosure requirement – not an actual requirement to invest more in UK equities. Unless and until trustees’ historic fiduciary pension investment duties, which require trustees to invest to achieve best financial outcomes, are updated by Parliament to specifically allow broader outcomes, this new disclosure requirement is not likely to result in any seismic change.   

Additionally there are investment considerations if this is made anything more than a disclosure requirement.  While there is a view that the value of UK equities is and have been under-valued in the past few years, the highest investment returns have been achieved by investing in the US tech market. 

Indeed the overall New York Stock Exchange value of Apple is more than the whole of the value of the UK FTSE 100 stock market. While tweaks to pension fund investment strategy may change this unbalance over time, the UK FTSE 100 stock market is akin to a tanker and changes to it will have to be steered through with an expert but slightly distant touch by the Chancellor.

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