A report by the New Financial think tank, in partnership with Goldman Sachs, suggests that European markets are stronger than they might seem.

No one needs to stay in the fund — but as New Financial points out, the average pension holder already believes they have a much higher allocation to UK equities than they actually do.

A “do nothing” approach risks seeing DC fund allocation to the UK slip further still to 3.5 per cent by the end of the decade, think tank New Financial warned, while full mandation would likely see UK equities rise to around 12.4 per cent of total funds.

“Vibrant public equity markets are crucial for the health of the UK economy, and a strong domestic base of pension funds really matters for UK equity markets,” said William Wright, founder of New Financial

If German individual investors had the same level of investment in the stock market as neighboring France, measured as a percentage of the economy, there would be an additional €1.1 trillion of capital to finance companies, according to New Financial, a think tank backed by the finance industry.

A survey by New Financial — a think-tank that has done a lot of number-crunching on the efforts to revitalise UK markets — revealed last month that holders of pensions in the country think a stonking 41 per cent of their retirement pots is invested in UK companies or stocks. The guesstimate rises to a little over half in those aged 55 to 64.

Think tank New Financial notes that more than twice as many people (7.9mn) put money into a cash Isa in the year to March 2023 than into a stock and shares Isa (3.8mn) – that’s less than 6 per cent of the population a year subscribing to a stocks-and-shares Isa, compared with an equivalent rate of 40 per cent in Sweden.

“The key now is clear and consistent signalling to companies, the market and investors that the environment in the near future will be even more predictable and business friendly,” said William Wright, managing director of the New Financial think-tank.

A report from think tank New Financial, in partnership with asset manager Fidelity International, has identified a potential €4.8 trillion opportunity to transform Europe’s financial landscape — by shifting savers out of cash and into long-term investments.

At the turn of the century about 50 per cent of assets in UK pension funds were invested in British equities but this has shrunk to 4.4 per cent, according to New Financial, a think tank, in a trend driven partly by regulation.

The writer is the founder and managing director of New Financial, a capital markets think-tank

A recent paper from think-tank New Financial warns that this situation will worsen without new incentives for pension providers to invest in domestic companies.

A lack of pension investment is part of the problem. New Financial says defined contribution (DC) pension schemes allocate just 4.9% of total assets to UK equities, on average. The global average for domestic equities is 13%.

This slow-motion sell-off has been particularly marked in pensions: the think-tank New Financial recently reported that pension ownership of UK shares had fallen from over 53 per cent in 1997 to just 4.4 per cent in 2024.

This national gloom has affected both institutional and retail investors. In 1997, UK pension funds on average invested 53% of their assets in UK stocks. By 2022, that had dropped to 6%, according to a study by the think tank New Financial, opens new tab.

“While the hard value of ESG financial activity is down from its peak in 2021, the overall growth over the past six years is strong and the market has proved surprisingly resilient in the past few years,” the paper said. The report was published by the London-based think tank New Financial on behalf of Luxembourg for Finance, an economic development agency, in June.

King said he wanted UK DC pension providers to invest more like those in Australia which allocate 14 per cent of their assets to private equity and infrastructure, according to think-tank New Financial, compared with 4 per cent for British DC schemes.

Indeed, research by the New Financial think tank found that more than 1,000 listed companies in Europe, worth a combined $1 trillion (£730 billion), had been taken private in the past decade; 259 of those were listed in London, valued at $280 billion.

New Financial think tank proposes reforms to use tax relief to encourage investment in UK equities and abolish stamp duty on shares in accounts

In 2000, UK pension funds had close to 50 per cent of their assets invested in domestic stocks, according to research by think-tank New Financial. By 2024, it had dropped to 4 per cent.