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Britons have the lowest appetite among their G7 peers for investing in the stock market, according to a new survey which showed personal wealth in the UK was mostly tied up in housing, pensions and cash.
UK savers invested just 8 per cent of their wealth directly in equities and mutual funds compared to 33 per cent in the US and an average of 14 per cent across the remaining five G7 countries, in follow the audit of national accounts by Abrdn.
The property manager has repeatedly called on the government to encourage ownership to help curb what it sees as a retirement crisis. There are “questions about how far (the UK government) can support older people . . . and retirement pots will be very short of what people need”, said Xavier Meyer, senior director of Abrdn’s investment business.
“Individual savings and investment will need to increase to meet this deficit,” said Meyer, who suggested Britons could look to other G7 nations for inspiration. He added: “Taking a few lessons from our international neighbors is not a bad idea.
In the US, a “risk-on culture” and a booming local stock market have driven personal wealth in parallel, said Laith Khalaf, head of investment analysis at AJ Bell.
The S&P 500 index of the largest US listed companies has risen more than 1,100 percent over the past 30 years, more than similar indices in the G7. In the same period, the UK’s FTSE 100 index rose by just 135 per cent.
Khalaf added that in the US, the long-term trend of “people managing their pension” using 401(k) plans has encouraged people to actively manage their money and invest in stocks.
The UK comes top of the pension fund pile in Abrdn’s analysis: 19 percent of personal wealth in the country is allocated to pensions, compared to 17 percent in the US and 6 percent in Germany, the lowest of the G7.
Chancellor Rachel Reeves has tried to reduce pension fund investment importing parts of the UK to boost British companies and fuel infrastructure projects.
Think-tank New Financial has estimated that UK pension funds have reduced their allocation to UK pensions from just over half of total assets in 1997 to 4.4 per cent today – among defined contribution schemes a share of higher, at 8 percent.
Susannah Streeter, head of finance and markets at investment platform Hargreaves Lansdown, said that UK pension fund money was flowing into global markets because of the high interest rates being offered. “That (discourages) companies to list in the UK, and if fewer companies list, there are fewer opportunities for UK investors because they don’t enjoy those benefits.”
The Chancellor proposed that a integration of pension schemes in November to encourage domestic investment, but the schemes have now stopped forcing funds to invest in the UK.
Around 15 per cent of UK wealth is held in cash, in line with other European G7 countries, but less than half the share of Japan, where cash accounts for more than a third of personal wealth which is money.
Darius McDermott, managing director of advisory firm Chelsea Financial Services, said: “Japan has had a shock from the late 1980s onwards, when the stock market “That was followed by a long period of deflation and low interest rates” which meant that savers could hold money without worrying that its value would deteriorate, he said. add.
The recent rise prompted the Japanese government to introduce bigger tax breaks for investment last year. In January 2024, the Nippon personal savings account (Nisa) – first introduced in 2014 and based on the UK’s Isa – was. extended with attractive tax exemptions. The revised Nisa gives people tax exemption for the lifetime of the investment and the contribution limits are tripled.
The UK Isa scheme has now ended 25 years and is used by more than 22 million people, it has been hailed as a success – but advisers point out that two-thirds of those who only hold cash, according to an analysis by AJ Bell, a financial platform, of the latest data HM Revenue & Customs, for 2021-22.
Streeter noted that Isa balances have not increased since 2017. “I think it’s disappointing, because if there was a huge tax-free shelter where money could be bought in equities , would encourage more investment in the stock market.”
The UK is largely in line with the rest of Europe’s G7 countries on housing, with almost half of personal wealth allocated to the property category – although in countries where house prices are high, residents may have no choice but to spend most of their wealth on bricks and mortar.
In the United States, only a quarter of people’s wealth is at home, a fact that the assistant economist of Abrdn James McCann suspects is related to the “high distribution of equity” in US households and “a slight decrease due to the crisis of finance”, which affected the community. The US is worse than other housing markets in the G7.
Abrdn’s analysis included the full value of the foreclosed home and did not remove the mortgage.
Myron Jobson, senior financial analyst at investment platform Interactive Investor, said “the ‘bricks and mortar’ mentality in the UK coupled with a strong property market has created a generation of home owners. “And there are double benefits. of the income that comes from renting that property and the growth of your initial investment,” he added.
Yolande Barnes, chairman of the Bartlett Real Estate Institute at the University of London, said that the “abundance of wealth” in the country was the most important factor in determining the distribution of people’s property.
“Only the wealthiest groups tend to use high-risk, high-return funds as their hedge funds,” Barnes said, citing. research is the Resolution Foundation, a think tank. He said: “The middle class tends to use buildings – especially houses – a lot.”
Therefore, the high distribution of equity in the US is explained by the large number of wealthy people who had a great tendency to invest in funds and other high-risk assets.
Abrdn said its figures differed from other estimates of wealth distribution – such as the UK Office for Wealth Research and the UK’s National Treasury – due to differences in data sources, methodological assumptions and valuations. How is the property collected? It said it used figures from national reports as it was “the best way to compare across countries”.
The asset manager will publish the figures in detail on Monday, in its “Tell Sid and tell him again” report on how to encourage retail participation in the stock market.
