However, the Goldman Sachs report warned this does not mean British shares should expect a boost in the coming years.
Analyst Sharon Bell said: “Even if DC funds – which tend to allocate much more to equity – become the dominant part of the pension pie, we might still find a lack of [demand] for domestic stocks from this source.
“Incentives to capture these assets for UK investment along with a compelling equity-market growth story would be needed to change this. Of course, this is somewhat circular; there is a need for domestic investors/ownership in order to deepen the capital market and encourage new companies to list.”
The Government is trying to address this with a range of new policies, including a British ISA that allows savers a bigger tax-free pot if they invest in UK-listed shares.
Chancellor Jeremy Hunt said the ISA’s extra £5,000 allowance will “ensure that British savers can benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand”.
A HM Treasury spokesman said: “At Spring Budget, the Chancellor announced plans that build on current reforms to strengthen the UK’s capital markets, increase liquidity, boost savings, and facilitate investment in UK companies – and said that he will consider what further action should be taken if pension investment does not take a positive trajectory towards international best practice.
“Already our Mansion House and Edinburgh reforms are delivering a plan for long-term growth of the economy, including unlocking up to £75bn from pension funds and a compact encouraging defined contribution funds to reach 5pc investment in unlisted UK equities.”
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