Britons have ‘lowest appetite’ for stock market investing in G7

Britons have the lowest appetite among their G7 peers to invest in the stock market, according to new research, with personal wealth in the UK mostly tied up in housing, pensions and cash.

UK savers invest 8 per cent of their wealth directly into equities and mutual funds, compared with 33 per cent in the US and an average of 14 per cent in the remaining five G7 countries, according to an analysis by national accounts.

The asset manager has repeatedly called on the government to encourage home ownership to help prevent what it sees as a crisis in pensions. “There are questions about how well the UK government can support ageing. . . And pension pots are shrinking from what people need,” said Xavier Meyer, CEO of Abrden Investments.

“Private savings and investment will need to increase to meet this shortfall,” Mayer said, adding that Britain would look to other G7 countries for inspiration. “It’s not a bad idea to take a few lessons from our international neighbors,” he added.

In the US, a “culture of risk-taking” and a booming domestic stock market has driven private wealth into equities, said Latite Clough, head of investment analysis at AJ Bell.

The S&P 500 index of large, publicly traded U.S. companies has risen more than 1,100 percent over the past 30 years, outperforming similar G7 indexes. Over the same period, the UK’s FTSE 100 index rose by just 135 per cent.

Khalaf added that the long-term trend in the U.S. of “people managing their own retirement” using 401(k) plans has encouraged individuals to actively manage their money and invest in equities.

The United Kingdom ranks high in the Abrdn analysis for pension funds: 19 percent of private wealth in the country is allocated to pensions, compared to 17 percent in the United States and 6 percent in Germany, the lowest of the G7.

Chancellor Rachel Reeves tried to invest in pension funds. to UK shares To revive British companies and oil infrastructure projects.

Think-tank New Financial estimates that UK pension funds’ holdings of UK stocks have fallen from more than half of what they were in 1997 to 4.4 per cent today – the highest rate among defined contribution schemes at 8 per cent.

Susanna Streater, head of money and markets at the investment platform, said UK pension funds are flowing into global markets because of the high returns on offer. “That[discourages]companies from listing in the UK, and if fewer companies list, there’s less opportunity for UK investors because they’re not happy with the benefits.

Chancellor A Consolidation pension schemes in November to encourage domestic investment, but the schemes have so far stopped short of forcing money to invest in the UK.

About 15 percent of UK personal wealth is held in cash, in line with the rest of Europe’s G7 nations, but less than half in Japan, where a third of all personal wealth is held in cash.

“Japan has been scarred since the late 1980s when the stock and property markets collapsed,” said Darius McDermott, managing director of Chelsea Financial Services Consultancy. “This was followed by a long period of falling prices and low interest rates,” meaning savers could hold onto money without worrying about prices eroding, he added.

Recent inflation prompted the Japanese government to offer big tax breaks for investment last year. In January 2024, the Nippon Individual Savings Account (NISA) – first introduced in 2014 and based on the UK Isa – was It is spread More attractive tax exemptions. The revised NISA gives individuals lifetime tax exemption on equity investments and the contribution limits have been tripled.

The UK Isa scheme, has now ended. 25 years And used by more than 22 million people, it has been hailed as a success – but consultants point out that only two-thirds of those hold cash, according to AJ Bell, the financial platform, according to the latest HM Revenue and Customs data. For 2021-22.

Streeter said Isa limits had not increased since 2017. “I think it’s a bit of a boost, because if there’s a big tax-free package where money can be bought in shares, it will encourage more investment in the stock market. “

The UK is mostly in line with the rest of Europe’s G7 countries in housing, with around half of personal wealth allocated to the property sector – although residents in countries with high house prices may have no choice but to store a large part of their wealth. Bricks and mortar.

In the US, only a quarter of private wealth is in housing, a fact that is linked to “higher equity allocation” among American households and “less scarring from the financial crisis,” said James McCann, deputy chief economist for Real Estate. The US is worse off than any other home market in the G7.

Abrd’s analysis included the full value of foreclosed homes and did not deduct mortgage debt.

Myron Jobson, senior personal finance analyst at investment platform Interactive Investor, said the “bricks and mortar mentality” in the UK, along with a strong property market, had created a generation of landlords. “And there’s the double benefit of income from renting that property and capital growth on your original investment,” he added.

Yolande Barnes, chair of the Bartlett Institute of Real Estate at the University of London, says the “abundance of wealth” in a country is the most important factor in determining people’s wealth allocation.

“Only those in the highest wealth bands tend to use high-risk, high-return investments, for example, in their wealth portfolios,” Barnes notes. Research By The Solution Foundation, a think tank. “Middle-class wealth groups tend to use real estate — primarily housing — more,” she said.

So the U.S.’s high equity dividend is partly explained by a higher proportion of the wealthy and more willing to invest in other high-risk instruments, she said.

Abrdn said the numbers differ from other asset allocation estimates – such as those from the UK’s Office for National Statistics Wealth and Property Survey – due to differences in data sources, methodological assumptions and how property values ​​are compiled. He said he used figures from national accounts because they were “the best and most efficient way to compare across countries”.

The asset manager will publish the full numbers on Monday in its “Tell Sid and tell him again” report on how to encourage retail participation in the capital markets.