For pension investment – may the worst be behind us?


The FTSE 100 broke through 8,000 last week – is the worst behind us?


Last week, the FTSE 100 breached the 8,000 mark for the first time. I remember standing on Vauxhall Bridge as the clock ticked round to midnight on 31/12/99 , discussing with a friend when we’d see the FTSE at 10,000.

Since then the UK market is down to 4 per cent of the world equity benchmark. Shell, the biggest stock, ranks only 38th in global market value. Share buybacks have accelerated, along with take-privates. New listings have dried up. The UK has “de-equitised”.

But could this be turned round? Could Britain find its financial and economic mojo again?

The Financial Times reports that the UK’s resilient economy points to a mild recession.

A flow of key data over the past 10 days suggests that the UK economy is showing a level of resilience that was not in evidence just a few months ago.

Inflation has fallen more than expected and the labour market remained robust, according to the latest data, which has left many economists anticipating the end to further interest rate rises by the Bank of England and a milder recession than previously predicted.

All the same , the market signals about what is happening in the UK are confusing.

The UK Stock Market may be at an all time high yet the OECDC argues that the  UK economy stands out as losing ground against its peers

News some economists love to hear

Many economists seem to be almost willing bad news upon us to justify their implacable opposition to Brexit. They cite charts such as the one above as evidence that our new found independence has led to lower living standards and lower economic growth.

I haven’t felt this level of discord about Britain’s future since I was in my teens growing up in pre-Thatcher Britain. Back then I remember being told that Britain was facing irreversible economic decline from our failure to compete with Japan , America and resurgent European economies such as West Germany.

There appeared then –  the same calls to back Britain – as Kier Starmer is asking us today.  Once again we are being asked to  “buy British”.

But we are also being called on to invest British.  There are calls for British pension funds to reshore money that has been relentlessly switched into overseas markets  through global and overseas equity funds.

We also need to urgently look at UK Savings Rates

Martin Woolf writes in the FT.

It is essential, then, to raise public and private investment if the country is to attain faster growth. This will require a higher share of investment in GDP than its historically low levels. But investment is financed by savings. The striking fact about UK investment is that it is also heavily dependent on foreign savings. That is because its savings are even weaker than investment.

This, too, is a chronic condition, not a recent one. Between 2010 and 2022, UK gross national savings averaged a mere 13.3 per cent of GDP. The US average was 19.0 per cent and Italy’s was 19.8 per cent. Still further ahead were France, with 22.6 per cent and Germany, with 28.2 per cent. Korea’s averaged 35.7 per cent.

The UK’s low rate of national savings makes it significantly dependent on foreign savings to finance its investment. This is revealed in the current account deficit. On average, that deficit was 3.8 per cent of GDP from 2010 to 2022. That financed roughly a fifth of UK gross investment over that period. If investment rose without an equivalent rise in domestic saving, the external deficit would become still bigger.

Investing British

There seems to me an opportunity today to reconsider just what has happened since the high point of British economic optimism (I mean the Blair years of the opening decade of the millennium and today).

Why have we – as pension experts, presided over the decline of our pension system from one that provided certainty and funded the UK economy to one that craves for legitimacy as a pension system while investing in debt and – where growth is required – investing for it abroad?

It may be that the way to invest British is through private markets and not through public equity. It may be the private equity houses not the UK Stock Exchange that excites the rebirth of interest from the fiduciaries in our long term saving. But the signs of a more resilient confidence in investing in Britain are already here. The conditions for a reinvestment in the UK are in place.

UK’s investment advantage.

In one aspect, UK pension schemes are not as the market. That is that they are controlled by UK and not overseas fiduciaries. Remarkably, the insurance companies that are taking over the residual of our corporately funded DB pensions are primarily UK listed or owned by UK private equity.

While Black Rock and State Street are major players in the management of UK pension money, the direction of money across geographies and asset classes remains in the control of the funders of our large trusts and the boards of what are largely British insurance companies.

If UK has control of its financial destiny, it is largely because it still controls the levers of its long term savings. Our resilience as a national economy is to a degree in our own hands.

We do not need the imposition of exchange controls, we need economic and financial self-confidence.

Is economic and financial confidence beginning to return?

The FT suggests that the UK economy is more resilient than has been thought, not least by the OECD that rate us laggards. The FT quotes Ruth Gregory, deputy chief UK economist at Capital Economics.

“The economy is proving to be remarkably resilient to the dual drags of higher inflation and higher interest rates, and it certainly feels as though it isn’t as weak as most had feared,”

She thinks that the government energy support packages have been “effective” and “that households and businesses have been spending the cash reserves they built up during the pandemic”.


After 20 years of dithering, isn’t it time to show some resilience in the way we manage our money. We know what we have to do – let’s do it.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to For pension investment – may the worst be behind us?

  1. emigreeu says:

    FTSE 100 on January 3rd 2000 was 6269 now 8000.
    RPI was at 166.6 now 360.3
    Do you think that investment in equities represents VFM?

    • jnamdoc says:

      Over any sensible timescale for pension scheme investors quality yield has been the most consistent and dominant contributor to returns by far, so add in c3.5% running yield reinvested and you’d get there. Assuming you want to ‘place’ money (rather than do all the hard work of investment assessment and selection) then a simple rule of thumb would be to avoid all of the nonsense and froth (ie avoid those with a yield more than 200% of the running yield, and those paying no div or a div less than a 10th of the running yield) and you’ll generally limit large destruction of capital, and the compounding of divs and growth will do the job.

  2. John Mather says:

    Dividends less charges help to a modest extent

    The FTSE 250 might be worth looking at However surely the VFM should provide a toral return in excess of inflation as a minimum the professional manages should at least preserve buying power

  3. John Mather says:

    Then there is the currency over the period the pound devalued from 1.42 to 1.20

    Pound Dollar Exchange Rate (GBP USD) – Historical Chart

    • jnamdoc says:

      Even better – so your holdings in liquid overseas equities (mostly USD) will have given a little kicker over inflation.

  4. emigreeu says:

    Over the period inflation required 3.41% With RPI currently at 14% (13.4%) and unlikely to be reduced plus the effect of charges I have some reservations. Add in the 55% LTA tax on prudence…..even with reinvested dividends preservation of buying power will be a rare outcome.

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