British investment funds alert as massive withdrawals spark ‘dark age’ warning | Personal Finance | Finance

Struggling Britons have taken £51billion out of their investment nest eggs in the past two years, it has been revealed.

The figure taken out of stocks and shares rises to £108billion after withdrawals by large institutions are added to the equation.

The figures, from the Investment Association, have revealed that Britons have scrambled to withdraw funds in what some industry experts are labelling a ‘dark age’.

Miranda Seath, Director, Market Insight & Fund Sectors at the Investment Association, said: “The cost-of-living crisis and economic uncertainty has continued to impact households across the UK.”

As a result, she said investors had withdrawn just under £24.3billion from funds in 2023, which was on top of £26.9billion in 2022.

Laith Khalaf, head of investment analysis at AJ Bell, said: “The UK funds industry is going through a dark age.

“The scale of these withdrawals is absolutely unprecedented.”

He said: “There are a number of reasons investors might be taking money out of investment funds. One is the cost-of-living crisis has meant more people relying on their savings to meet day to day spending needs.

“High interest rates have also raised the relative attractiveness of cash. Indeed, it’s notable that money market funds were a bright spot in the gloom, becoming the best-selling asset class in 2023.”

Mr Khalaf said the pain is not being shared amongst the investment industry equally.

“Active managers, and UK equity fund managers, are at the extremely sharp end of proceedings. UK equity funds saw their worst year on record in 2023 for outflows, somehow eclipsing an utterly diabolical 2022,’ he said.

“£13.6billion was withdrawn from these funds in 2023, compared to £12billion in 2022. This doesn’t augur well for confidence in the UK stock market, which is leaking members and performance to overseas competitors.”

The Chancellor Jeremy Hunt has signalled he hopes to revive the fortunes of UK stocks through a British ISA and a Tell Sid style campaign reminiscent of Margaret Thatcher’s privatisation of British Gas.

But Mr Khalaf said: “When it comes to funds, Sid isn’t listening. UK equity funds have been in outflows for eight years now and while the government might want to see a U-turn, these latest figures show that UK fund investors aren’t for turning.”

He suggested one reason behind the fall in stock market investments is that more people are using their pension nest eggs to buy an annuity, which provides a guaranteed income. There was a 46 percent rise in annuity sales in 2023.

Mr Khalaf said: “Many of those buying annuities would otherwise be likely candidates for an investment in UK equity income funds with their pension pot.”

He added: “The active fund industry is also facing an existential crisis. £38.1billion of money was withdrawn from active funds in the course of 2023, on top of £37.9billion of outflows witnessed in 2022.

“Meanwhile passive funds continue to hoover up sizeable chunks of money, leaving the active management industry to fight over the crumbs.

“Part of the problem is that many active funds have not been delivering on their side of the bargain.

“Our latest Manager versus Machine report found that less than a third of active equity funds outperformed a passive alternative over a ten year period.”