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Scottish Widows, one of Britain’s largest pension providers, is preparing to significantly reduce its allocation to UK equities just as the government is pushing retirement funds to invest more in British companies.
The group, which manages £72bn of workplace pension assets in its default funds, is planning to cut the allocation to UK equities in its highest growth portfolio from 12 per cent to 3 per cent, according to a document seen by the Financial Times.
Scottish Widows said in a separate document explaining the change to clients that it was adopting a “more globally-diversified approach” with the aim of “enhancing risk-adjusted returns by capturing more growth opportunities in high performing international markets”.
The move by the Lloyds Banking Group-owned pension provider deals a further blow to Britain’s ailing stock market, where delistings are outpacing new initial public offerings and there is a gulf in valuations between UK and US-listed companies.
Ministers have been trying to encourage pension schemes to invest more in British stocks, following years of pension schemes selling UK equities as they turned to more attractive opportunities overseas while defined benefit schemes have also turned more to bonds as they matured. The US S&P 500 index has added 235 per cent on a total return basis in the past decade, compared with 92 per cent for the FTSE 100.
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.
Scottish Widows plans to cut the allocation to UK equities in its most conservative portfolio from 4 per cent to 1 per cent, according to the document. Portfolios that aim for higher growth rates are typically more heavily invested in equities, with bonds making up a higher proportion as employees near retirement.
Plans to lower allocation to UK equities come with plans to increase exposure to US stocks. The highest risk portfolio would increase North American equity exposure from 46 per cent to 65 per cent by January, while the lower risk portfolio would increase US stocks from 17 per cent to 25 per cent.
Scottish Widows has about 7.6 per cent of its default workplace pension plans invested in UK equities. It invests a higher proportion of its “assets under discretionary influence” in the UK: of the £165bn that falls in that category, £35.3bn is invested in the country.
Cutting the proportion of its default funds invested in UK equities would bring Scottish Widows closer into line with some of its rivals. Aviva’s long-term growth pension portfolio has 3 per cent allocated to UK equities.
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The planned changes come after Scottish Widows last month refused to sign a pledge by 17 providers to invest at least 5 per cent of their default funds in British private market assets by 2030 in the Mansion House Accord. It was the only big UK pension fund manager not to do so.
In the documents seen by the FT, the pension provider said its changes would be gradual and completed in December or January 2026. The planned allocations are described as “indicative” and could still change.
Scottish Widows told the FT that its “new and enhanced pension proposition — Scottish Widows Lifetime Investment — takes a market weight allocation to global equities by default, in line with similar propositions from other pension providers”.
It added it would review these weightings on an annual basis and “where appropriate may include a home bias”.
