A report published last month by think-tank New Financial suggested UK banking, finance and capital markets have declined in relative terms in the past decade compared with international markets across nearly 60 metrics of value and activity.

The country’s pension funds allocate just 4.4% of their assets to UK equities, down from more than half around the turn of the millennium, according to the New Financial think tank.

There are currently about 30 authorised master trusts and 30 providers of contract-based schemes, with assets of around £130bn and £350bn respectively last year, according to the government and New Financial think-tank.

Abrdn, business group the Quoted Companies Alliance, and think tank New Financial launched a report warning that the future of London’s small-cap market could be in jeopardy if the changes go ahead.

New Financial said the biggest challenge for smaller listed companies has been the collapse in demand from the U.K.’s institutional and retail investors.

Speaking at the launch of a new report on the poor prospects for smaller companies in the UK from think tank New Financial, Stuttard said that instituting an inheritance tax on AIM shares would cause a “significant slug of capital” to exit the market.

The asset manager’s call comes as New Financial, a think-tank, released a report on the state of UK smaller stocks, noting that about 600 companies with a market value of less than £1bn have delisted over the past two decades.

The effect, though, has a disproportionate impact on smaller companies, argues New Financial’s managing director William Wright.

Canadian public sector pension schemes have 22% of their assets in private equity and 12% in infrastructure, compared with 6% and 5% for British local government pension schemes, according to a report last week from think tank New Financial.

UK pensions have a "significantly lower" allocation to domestic and unlisted equities than most developed market pension systems globally, according to a separate report published on Friday by think tank New Financial.

According to the think-tank New Financial, a mere 8% of funds in United Kingdom defined contribution pensions are invested in United Kingdom equities - far behind the levels found in analogous economies.

UK pension funds allocate just 4.4% to UK stocks, compared with 50% at the turn of the millennium, according to the think tank New Financial.

Only 8 per cent of funds in UK defined contribution pensions are invested in UK equities, according to think-tank New Financial, and British pensions invest far less in domestic equities than in other markets such as Italy and Australia.

The ecosystem for smaller listed companies is now under threat, according to New Financial, the City think tank.

In seven of the past 10 years, more listed small companies have left the UK stock market than joined it, and this trend will continue unless serious action is taken, a new report from think tank New Financial said.

Illustrating the scale of the challenge for smaller companies, think tank New Financial said UK smaller company funds have recorded a 36th consecutive month of outflows while smaller company market debuts plunged by 80% to just 22 over the past decade.

Smaller companies represent only 8% of the combined value of Britain's bourse. But they account for over 80% of listed UK companies, provide key jobs and investment and can become tomorrow's stockmarket darlings with help from the government, regulators and industry, New Financial said.

In an analysis of banking and finance regulation since 2014, New Financial said a culture of risk-aversion in regulation and financial services since the 2007-2009 credit crisis had spilled into the wider economy and stifled investment.

New Financial showed that UK pension schemes have among the lowest proportion of funds held in domestic stocks and private assets of any significant global pension market, adding pressure on the government to revive investment in British industry.

UK pension funds allocate around 4 per cent of their assets to UK stocks, think-tank New Financial said in a report this week, down from over half 25 years ago — a stunning retreat.