Britons have the lowest appetite among their G7 peers for investing in the stock market, according to a new study that showed personal wealth in the UK was mostly linked to housing, pensions and cash.
UK savers invested just 8 per cent of their wealth directly in stocks and mutual funds, compared with 33 per cent in the US and 14 per cent on average in the remaining five G7 countries, according to national accounts analysis by Aberdeen.
The asset manager has repeatedly called on the government to encourage share ownership to help avoid what it sees as a retirement crisis. There are “questions about the extent to which (the UK government) can support an aging population… pension funds will increasingly fall short of what people need,” said Xavier Mayer, chief executive of the Aberdeen firm’s investment business.
“Personal savings and investments will need to increase to fill this shortfall,” Mayer said, suggesting that Britons should look to other G7 countries for inspiration. “Learning some lessons from our international neighbors is not a bad idea,” he added.
In the United States, a “risk-on culture” and a booming domestic stock market have pushed personal wealth into stocks, said Laith Khalaf, head of investment analysis at AJ Bell.
The Standard & Poor's 500 index of large listed US companies has risen more than 1,100 percent over the past 30 years, far outpacing similar indexes in the Group of Seven. During the same period, the UK's FTSE 100 rose by just 135 per cent.
Khalaf added that in the US, there has been a long-term trend of “people managing their own pensions” using 401(k) plans, which has encouraged individuals to manage their money effectively and invest in stocks.
The UK tops the list of pension funds in Aberdeen's analysis: 19 per cent of the country's personal wealth is allocated to pensions, compared with 17 per cent in the US and 6 per cent in Germany, the lowest among the G7.
Chancellor Rachel Reeves has tried to mobilize pension fund investments In UK stocks To revitalize British companies and fuel infrastructure projects.
Research center New Financial estimates that UK pension funds have reduced their allocation to UK equities from just over half of all assets in 1997 to 4.4 per cent today – among defined contribution schemes the ratio is even higher, at 8 per cent.
Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdowne, said UK pension fund money was flowing into global markets because of the high returns on offer. “This (discourages) companies from listing in the UK, and if fewer companies list, there will be less opportunity for UK investors because they are not so keen on the gains.”
Counselor A suggested Unification of pension plans in November to stimulate domestic investment, but the plans have so far stopped short of forcing the money to invest in the UK.
About 15 per cent of personal wealth in the UK is held in cash, in line with other European G7 countries, but less than half the proportion in Japan, where just over a third of all personal wealth is in the form of cash.
“Japan has suffered the scars of the period from the late 1980s onwards, when stock and property markets collapsed,” said Darius McDermott, managing director of Chelsea Financial Services Advisory. “This was followed by a long period of deflation and low interest rates,” he added, meaning savers could hold on to cash without worrying about its value eroding.
The recent rise in inflation prompted the Japanese government to offer greater tax breaks for investments last year. In January 2024, the Nippon Individual Savings Account (Nisa) – first introduced in 2014 and based on the UK Isa – was launched. Expanded With more attractive tax breaks. The enhanced NISA scheme offers individuals a lifetime tax break on equity investments and contribution limits have been tripled.
The UK Isa scheme has now ended 25 years old It is used by more than 22 million people and has been hailed as a success – but advisers point out that two-thirds of those have only cash, according to an analysis by AJ Bell, a financial platform, of the latest HMRC data. For the period 2021-22.
Streeter noted that the ISA thresholds have not been increased since 2017. “I think that's somewhat discouraging, because if there was a larger tax-free envelope under which money could buy into stocks, that would encourage more investment in the stock market. “
The UK is broadly in line with other European G7 countries on housing, with around half of personal wealth allocated to the asset class – although in countries where house prices are rising, residents may have no choice but to allocate a significant portion of their wealth Brick and mortar.
In the US, only a quarter of personal wealth goes into housing, a fact that James McCann, deputy chief economist at Aberdeen, suspects is linked to a “higher allocation to equities” among US households and “less scarring from the financial crisis”, which hit the US United. The US is worse than other G7 housing markets.
Aberdeen's analysis included the full value of homes owned and did not subtract mortgage debt.
Myron Jobson, senior personal finance analyst at investment platform Interactive Investor, said the UK's “brick-and-mortar mentality” coupled with a strong property market has created a generation of landlords. “There is a dual benefit of income from renting this property and capital growth on your initial investment,” he added.
Yolande Barnes, head of the Bartlett Real Estate Institute at University College London, said a country's “range of wealth” was the most important factor in determining the distribution of assets among people.
“Only those in the highest wealth groups tend to use higher-risk, higher-return investments such as stocks in their wealth portfolios,” Barnes said. research By the Decision Foundation, a think tank. “Mid-range wealth groups tend to have much greater use of real estate – mainly housing –,” she said.
She added that the higher equity allocation in the US was partly explained by the larger number of wealthy individuals who have a much greater propensity to invest in stocks and other high-risk instruments.
Aberdeen said his figures differ from other estimates of asset allocation — such as the U.K.'s Office for National Statistics' Wealth and Assets Survey — because of differences in data sources, methodological assumptions, and how asset values are aggregated. It said it used figures from national accounts because it was “the best and fairest way to compare countries”.
The asset manager is due to publish the full figures on Monday, in its Tell Sid and Tell Him Again report on how to encourage retail participation in capital markets.
