Key Takeaways:
- BlackRock Smaller Companies manager wants the government to stop making short-term changes to pensions.
- Rockwood Strategic manager wants ISAs repurposed to focus on UK equities.
- UK managers want the Autumn Budget to include measures that improve investor confidence and company performance.
UK taxpayers are braced for what Chancellor Rachel Reeves plans to impose on them at the Autumn Budget on Nov. 26. But the speech is also an opportunity for the government to lay down more positive foundations for UK investors and savers to improve their financial futures.
At this time of the year, UK fund managers usually compile a “wishlist” of measures they want to see announced. This time around, managers at BlackRock, Aberdeen, Rockwood Strategic and Forvis Mazars are hoping for measures that drive confidence and investments into UK companies, whether that’s through a restructured ISA or better utilization of pension assets.
Four Changes UK Managers Want From the 2025 Autumn Budget
Stop Making Short-Term Pensions Changes
The government needs to stop making short-term changes to pensions, a long-term product, says Roland Arnold, manager of BlackRock Smaller Companies BRSC, a UK small- and mid-cap UK equity trust that has a Morningstar Medalist Rating of Bronze.
Some proposed changes expected in late November include a drop in the tax-free lump sum allowance, removal of tax relief for higher earners, changes to the tax treatment of company pension schemes, and the reintroduction of the Lifetime Allowance, which limited total contributions to defined contribution schemes.
Arnold says all the uncertainty makes pension savers hesitant to commit money, which could be damaging to long-term returns.
“All of those things mean that people will go, ‘Well, let’s just wait until the other side of the Budget’. Because no one wants to be the person that’s put money in, only to find out that the rules have completely changed.”
Some investors, meanwhile, are attempting to pre-empt possible tax changes in the Budget. Wealth manager Rathbones has reported a surge in lump sum withdrawals following speculation that the 25% tax-free allowance could be cut. A similar move was expected in the 2024 Autumn Budget, leading to withdrawals that many investors ended up regretting.
Significant changes have already been made to the UK pensions regime.
The 2024 Budget saw the government bring private pension savings into the scope of inheritance tax from 2027, a move that has already prompted many to change their investment allocation strategies.
“Pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance,” the government said at the time.
Invest Pensions in UK Plc
Pensions assets need to be more heavily-invested in UK assets, according to Richard Staveley, manager of UK smaller companies-focused Rockwood Strategic RKW. Even the UK government is failing to allocate to the UK equity market, despite strong gains in recent years. He notes that politicians’ pension schemes only have a 1.6% exposure to the domestic stock market.
Some plans are already in motion to change the way pensions direct their money, although this is likely to benefit private markets more than public ones initially. But it has set a precedent for UK money managers increasing their allocations to the domestic capital markets.
During her Mansion House speech in July, the chancellor set out a plan to get pension providers invested in the UK’s private markets: companies that signed up like Legal & General and Royal London have pledged to invest at least 5% of default funds into UK private assets and projects like infrastructure. The 17 providers that have signed the accord represent 90% of active defined contribution scheme savers.
Repurpose ISAs for UK Equity Exposure
Individual Savings Accounts need to be fully repurposed, particularly for the 800,000 people who maximize their £20,000 ISA allowance every year, Rockwood’s Staveley says.
Speculation about the future of cash ISAs has been circulating for months, with the latest reports once again suggesting the chancellor is considering an overhaul of the £20,000 ISA allowance, to restrict cash holdings and divert savers’ money into stocks.
Whether this would be enough to boost the UK’s stock market is unclear, but Staveley says if it is overhauled, the tax wrapper should be reserved for investments into the UK economy. The idea of a “Brit ISA” mandating a minimum home allocation was floated, then abandoned, and has resurfaced again ahead of the Autumn Budget.
“If you want a tax break from UK taxpayers, it’s got to go into British-listed stocks and British-listed trusts,” he says.
“Someone that’s maximizing their ISA is after a tax break, not scraping every single penny to get up to £20,000. So if they’re still offered a tax break, the money will come in,” Staveley says, a move that could bring billions into the UK stock market.
Focus on Confidence and Long-Term Growth
Overall, the government must drive confidence in order to achieve growth, according to Abby Glennie, manager of the Silver-rated abrdn UK Smaller Companies Growth AUSC.
She says: “Confidence is the thing that is an absolute killer at the moment. [The government] needs to instil confidence—confidence in consumers, confidence in companies to invest for growth.”
Glennie highlights that companies are spending profits on share buybacks when they should be investing in growth, which would ultimately increase GDP, a key yardstick for the Labour government. In addition, she says sectors that are driven by market sentiment, like housebuilders, would benefit from a change in the economic outlook.
Alongside this, the government needs to focus on long-term growth and the sustainable finances that it brings, says Forvis Mazars’ chief investment officer Ben Seager-Scott.
He says: “Announcing a credible long-term fiscal plan would help calm government bonds and should stimulate business growth. The latter is especially important, as the country badly needs to improve productivity which has been lackluster for many years.”
But, any measures to encourage more investment in the UK, whether through ISAs or pensions, needs more carrot than stick, Seager-Scott says.
“Any such change needs to come alongside government investment or incentives.
“Bluntly, if UK assets were inherently attractive, then UK investors would already be allocating more to them. Mandating new allocations doesn’t create the right incentives for the creation of good long-term investment opportunities.”
