The proportion of UK shares directly held by UK pension funds fell from almost one in three (32.4 per cent) in 1990 to less than one in 25 (2.4 per cent) by 2018, representing a more than 90 per cent decline, industry research has revealed.

The research, undertaken by the Trade Union Congress (TUC), Common Wealth, and High Pay Centre, found that ownership of UK public companies has shifted from UK pension funds to foreign owners and investors.

According to the report, UK pension funds accounted for over a quarter of the total market vale of UK listed shares for nearly 20 years from 1981 to 1998, before declining to just under 13 per cent before the financial crisis in 2008.

Pension scheme holdings in UK shares continued to fall after this, and stood at around 2.4 per cent for direct ownership, and 6 per cent when including indirect ownership, in by 2018.

In contrast, the proportion of UK shares owned by overseas investors rose from 12 per cent in 1990 to 55 per cent in 2018.

The report also identified the number of costs and charges that must be borne across the complex investment chain as a particular issue for pension funds, warning that these high costs mean that holding UK shares is not an efficient way of sharing the value created by UK companies with working people.

The findings of the report were highlighted as "inarguable demonstration of a minimal and diminishing link" between the fortunes of the UK's largest companies and the pensions of working peoples, raising questions as to the justification that high levels of dividend payments are needed to "pay for our pensions".

Indeed, the report suggested that the remaining shareholder returns to pension funds also disproportionately benefits a wealthy minority, showing that the richest 20 per cent of UK households by income own 49 per cent of pension wealth in the UK.

It also showed that, as pension funds have divested and other types of shareowners came to dominate, the balance of boardroom decision making has also tilted away from reinvestment and toward value extraction.

As a result of these issues, the report warned that while FTSE100 companies paid out £442bn in dividends and share buybacks between 2014 and 2018, workers and pensioners received little benefit, in turn reducing funds for pay improvements, pension contributions or re-investment to secure the long-term success of the firm.

There is public support for reform to make firms balance the interests of shareowners with those of staff to help address these issues, with 76 per cent of workers backing a legal obligation for firms to give as much weight to the interests of their staff and other stakeholders as to their owners or shareholders.

In addition to this, TUC suggested that directors’ duties should be rewritten to remove the current requirement to prioritise the interests of shareholders over those of other stakeholders, and that boardrooms should include seats for workers, directly elected from the firm’s workforce.

TUC general secretary, Frances O’Grady, commented: “Working people deserve a fair share of the wealth they create. This should come through wages, pensions, and reinvesting profits to safeguard the future of the firm and its workforce.

“But in the last two decades, wages have stagnated. Pension schemes have been curtailed with the loss of defined benefits. And the connection between UK pensions and UK shares and dividends has been severed.

“This isn’t how it should work. But we can restore fairness by reforming company law so that directors have duties beyond short-term profits for shareholders. And we can restore the power that workers need to gain their fair share with stronger bargaining rights.”

Adding to this, Common Wealth director, Mat Lawrence, said: “The economic story of the decade is clear: workers have suffered while asset-owners have surged.

“Ensuring working people share in the wealth they create is fundamental to turning ‘levelling up’ from rhetoric to reality. But critically, if companies reduce dividends and increase wages and investment, this mustn’t come at the expense of ordinary pensioners.

“With pension wealth inequality so high, the stock market is starkly disconnected from ordinary savers. The solution is a fair settlement at work and social security system that provides security and dignity in retirement."

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