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‘Central system would flood the stockmarket’

A centralised pension investment scheme could flood the UK stockmarket with cash and artificially inflate share prices.

Hargreaves Lansdown head of research Mark Dampier says a centralised scheme pouring money into the UK stockmarket will have a similar impact to trackers in the late 1990s, resulting in large-cap stock valuations soaring through pressure of demand.

Dampier says: “If money is invested centrally, it is effectively going to be a tracker because the Government is not going to take the active route. The trouble with trackers is that a massive amount of money goes into very few stocks. In the late 1990s, we saw valuation anomalies in the top 100 as a result.”

ABI director of life and pensions Chris Kenny says the life and pension industry is structured to offer competitive choice to consumers, allowing cash to flow across all areas of the economy such as equities and bonds. He is concerned that a central agency running very big funds would control a massive proportion of the economy, distorting the macro picture.

Kenny says: “I would urge the Government to pursue a model that does not suppress choice. If you try to do it via a great new central system, the impact on the macro economy of six or seven very big funds is unpredictable.”

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