BT’s £39bn pension fund cuts UK investments in blow to Hunt’s Big Bang 2.0 ambitions

One of Britain’s largest pension schemes has slashed its holding of UK stocks in a blow to Jeremy Hunt’s hopes of triggering a ‘Big Bang 2.0’.

BT’s £39bn pension fund has cut back its exposure of London-listed stocks to just £100m – or 0.3pc of assets – new figures have revealed. Investment has fallen from £300m last year and £3.6bn in 2010.

The BT scheme is the largest on London’s blue-chip FTSE 100 index, with around 270,000 members.

The pension fund’s decision to reduce its holdings of British equities is a blow to the Chancellor’s ambitions to trigger a new “Big Bang” in the City by encouraging retirement savings managers to invest in the UK.

Mr Hunt has committed to a series of banking reforms that are intended to slash red tape and have attracted comparisons with Margaret Thatcher’s overhaul of the Square Mile.

The failure of BT’s pension fund to back Britain also drew condemnation from Baroness Ros Altmann, former pensions minister.

Baroness Altmann said: “It’s an outrage that a major pension fund, especially one underpinned to some degree by the Government and funded to a significant degree by taxpayer money, is not supporting the British economy.

“If you don’t have domestic sources of long-term funding supporting your own economy, then however much you believe you’re going to get a better return from investing overseas, you are impoverishing your own domestic base and therefore your members are going to have a poorer retirement because they’ll be living in a poorer country.”

Nick Delfas, an analyst at Redburn, said BT’s paltry domestic holdings “jumped out” and urged policymakers to take note.

Baroness Altmann called on MPs to do more to encourage pension funds to invest in Britain, saying it was crucial to economic growth.

She added: “I just think we’ve lost the plot a little bit on what a pension fund is meant to achieve… it’s about time we helped pension funds understand that there is a responsibility that goes along with getting tax relief.”

A spokesman said the BT pension scheme was reducing its exposure to equities as part of a de-risking strategy. The scheme is highly mature, with an average member age of 68.

The scheme’s overseas equities have also suffered heavy losses, tumbling 75pc to £1.7bn.

Nevertheless, the small proportion of UK stocks held by the fund highlights the FTSE 100’s waning status among global rivals. Last year, Paris leapfrogged London to steal the crown as Europe’s largest stock market.

John Ralfe, a pensions expert, said: “The truth is, the UK is a small stock market.”

The 66pc reduction in UK stocks held by BT’s retirement fund is understood to be partly linked to the chaos in financial markets that struck last September.

A sharp fall in government bond values in the aftermath of Liz Truss’s mini-budget triggered margin calls on products called liability driven investments (LDI), which are popular with pension funds.

The Bank of England was forced to make a dramatic £65bn intervention to mitigate the crisis, which forced many pension funds to rapidly sell assets to meet margin calls.

BT’s pension fund suffered an estimated £11bn drop in the value of its assets as a result of the crisis and is down almost £15bn since 2022.

Analysts also raised concerns about the high proportion of illiquid assets held by the BT pension scheme. Following last year’s sell-off, just 65pc of the scheme’s asset base is quoted, according to Redburn.

Illiquid assets are considered riskier as they are harder to sell, while it is also more difficult to establish a value.

The revelations come just days before the work and pensions select committee is due to begin an inquiry into defined benefit pension schemes amid concerns last year’s crisis exposed weaknesses in governance and regulation.

Wyn Francis, chief investment officer of Brightwell which manages the BT pension scheme, said: “The BT Pension Scheme is a major investor in the UK with 64pc of its total assets invested in UK gilts, corporate bonds, property, public equities, infrastructure and private equity.

“As a mature pension scheme, it is on a de-risking path so the allocation to equities has been steadily reducing for a number of years.

“Offsetting this, the scheme has been growing its exposure to the UK through investments in corporate credit, direct lending, infrastructure and income generating property.”