A “pensions time bomb” is set to explode in the UK if firms do not ramp up their contributions to pension pots and boost the amount of money flowing into UK equities, a top investor has warned.
UK companies have faced growing calls in recent weeks to boost the sums they give to defined contribution (DC) pensions schemes, in which employers and employees both pay a set amount into the pot.
Veteran fund manager Richard Buxton, who ran cash for clients for more than four decades until he retired from Jupiter Asset Management this year, has now warned of a looming crisis facing UK savers as pension funds fail to deliver the returns needed to support retirees.
“Unless we do this, there will be a pensions time bomb coming down the road, which will fall on the shoulders of our children,’ he told told The Mail on Sunday.
Buxton’s comments come after a top think tank last week called for a national hike in pension pots from the current eight per cent to 12 per cent.
In partnership with Abrdn and Citi, think tank New Financial called for an increase in the current contribution to DC pension pots from eight per cent of salary to around 12 per cent.
Currently, three per cent of the eight per cent is made up by employers and the remaining five per cent by employees.
Abrdn chief Stephen Bird called for pension contributions to double to 16 per cent to allow fund greater pools of capital.
Buxton added that the UK should push ahead with so-called pension superfunds made up of consolidated schemes that could give investors greater freedom to pump cash back into the stock market. Such funds may then be mandated to invest a portion of their assets in the stock market.
“It’s the answer,” Buxton told the Mail. “It would help reinvigorate capital markets.”
Pension funds’ holding of UK equities has plummeted in recent years. Just four per cent of the UK stock market is now held by pension funds — down from 39 per cent in 2000, according to New Financial.