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Statistical bulletin: MQ5: Investment by Insurance Companies, Pension Funds and Trusts, Q2 2013 This product is designated as National Statistics

Released: 20 September 2013 Download PDF

Key points

  • Total net investment by insurance companies, pension funds and trusts is estimated to have been £35 billion in the second quarter of 2013. This is markedly higher than the five year average for this quarterly series of £15 billion and is the largest quarterly estimate since Q2 2009.
  • At Q2 2013, net investment in overseas securities was strong (£11 billion) in comparison with the estimate for UK corporate securities (£2 billion). This indicates that businesses may have more confidence in their ability to make money from overseas securities than they do from UK corporate securities.
  • The net investment data for Q2 2013 would seem to suggest that investors are continuing to switch back to gilts in recent quarters, possibly in an attempt to beat the volatility of equity markets.
  • The estimated level of net investment by self-administered pension funds for Q2 2013 (£17 billion) is a quarterly record for this series, which goes back to 1983.

Overview

This release presents information about the investment choices of insurance companies, self-administered pension funds, investment trusts, unit trusts and property unit trusts. Reported in this release are quarterly net investment data arising from financial transactions (investments) made by these institutional groups. Also included are quarterly balance sheet data for short-term assets and liabilities, along with quarterly income and expenditure data for insurance companies and self-administered pension funds. All data are reported at current prices (effects of price changes included).

Every Q3 release contains annual balance sheet data for all the institutional groups; providing information on the market value of assets and liabilities. Annual income and expenditure data for insurance companies are also reported at that time.

A question often asked of the MQ5 release is ‘why does it only cover certain institutional groups?’  The answer is that these institutions control a substantial level of assets (over £3 trillion) and engage in significant volumes of investment activity to fund their operations. An understanding of their investments and assets is important in order to monitor the financial stability of the financial sector and as a key contribution to the UK National Accounts.

Over the next few years, changes to surveys covering the financial sector will be necessary to ensure ONS becomes compliant with the revised European System of Accounts 2010 (ESA10). Once the changes have been made and ‘bedded in’, ONS will consider expanding the MQ5 release to cover other parts of the financial sector, such as securities dealers and businesses engaged in the provision of financial services.

ONS makes every effort to provide informative commentary on the data in this release. As part of the quality assurance process, individual businesses are contacted in an attempt to capture reasons for extreme period on period data movements. It can prove difficult to elicit detailed reasons from some businesses to help inform the commentary. Frequently, reasons given for data movements refer to a ‘change in investment strategy’ or a ‘fund manager’s decision’. Consequently, it is not possible for all data movements to be fully explained.

We are aware that a number of users make use of these data for modelling or forecasting purposes. In doing so, careful attention should be paid to the revisions policy (50.7 Kb Pdf)  for this release. Comparing the first published estimates of total net investment with the equivalent estimates published three years later, the average quarterly revision (without regard to sign) is £5 billion.

The estimate of total net investment for Q1 2013 (last quarter) has been revised upwards by £5 billion from £16 billion to £21 billion (see background note 6 for further information).

A glossary (186.1 Kb Pdf)  is available to assist users with their understanding of the terms used in this release.

User engagement

We are constantly aiming to improve this release and its associated commentary. We would welcome any feedback you might have, and would also be particularly interested in knowing how you make use of these data to inform your work. Please contact us via email: Financial.Inquiries@ons.gsi.gov.uk or telephone David Matthews on +44 (0)1633 456756.

Net investment by asset type

The total assets of the businesses covered by this release (insurance companies, pension funds and trusts) were valued at around £3,010 billion at the end of 2011, the latest period for which annual results are available. During 2011, these businesses acquired £1,480 billion and disposed of £1,460 billion longer-term financial instruments with a combined value of £2,940 billion. Net investment is the difference between these substantial levels of acquisitions and disposals, as well as changes in holdings of short-term assets, and can be volatile. Table 1 displays net investment data by asset type.

Net investment is estimated to have been £35 billion at Q2 2013 (Figure 1), the highest recorded quarterly level of net investment since Q2 2009.

Total net investment varies across the quarters of a calendar year and so an increase or decrease in investment from one quarter to the next is not necessarily an indicator of improved or worsening economic activity – these estimates are more likely to reflect varying investment strategies. In terms of context, the five year quarterly average for this series is net investment of approximately £15 billion. The highest ever quarterly estimate of net investment was £43 billion at Q3 2007.

For 2012 as a whole, the provisional estimate of net investment reported by the institutions covered by this release is estimated to be £67 billion, compared with £24 billion and £68 billion for 2011 and 2010 respectively.

Figure 1: Total net investment

Figure 1: Total net investment
Source: Office for National Statistics

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Short-term assets

Short-term assets investment can be affected by the level of the net inflows of funds into the businesses concerned (premiums or contributions, for example) and by the relative attractiveness of other investments, both in the returns they may potentially generate and in their perceived risk.

At Q2 2013 there was net investment of £6 billion in short-term assets (those maturing within one year of their originating date), following sizable net investment of £18 billion last quarter (Figure 2). The total level of net investment in short-term assets in 2013 (£25 billion) currently exceeds the annual estimates for short term assets in each of the past five years.

The revised Q1 2013 estimate of £18 billion is the highest recorded level of net investment in this series since Q3 2007, when net investment of £19 billion was reported. This is likely to reflect shifts in the balance of perceived risks among the surveyed institutional groups. Rising global equity indices and growing evidence of an economic recovery in the US were balanced against a reduction in the UK’s credit rating by Moody’s and by a sense of renewed financial crisis in the Euro-zone emanating from Cyprus. In light of these developments, a number of businesses reported that they were investing in short-term assets as they were “choosing to favour liquidity at this point in time”. Relatively liquid short-term assets are particularly attractive during periods of uncertainty, as they allow businesses to change their investment strategies as events unfold.

Since Q1 2011 there have only been three quarters of disinvestment (Q3 2011, Q2 2012 and Q4 2012) in short-term assets. This contrasts with the period Q3 2008 to Q4 2010 (inclusive), when 6 of the 10 quarters showed net disinvestment. This longer-term comparison highlights how institutions, taking account of the prevailing economic climate, have chosen to restructure their investment portfolios. The five year quarterly average for this series is net investment of £1 billion.

Figure 2: Net investment in short-term assets

Figure 2: Net investment in short-term assets
Source: Office for National Statistics

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British government sterling securities (gilts)

Gilts are fixed income or index-linked bonds issued by the UK government. The purchaser of a gilt is lending the government money in return for regular interest payments and the promise that the nominal value of the gilt will be repaid (redeemed) on a specified future date. Gilts are very liquid assets which offer virtually risk-free returns. In recent times, the market for gilts has been significantly influenced by the Bank of England’s Quantitative Easing (QE) programme. Approximately £375 billion of gilts have been bought by the Bank under QE since the start of the programme in 2009.

The institutions covered by this release reported net investment in gilts at Q2 2013 of around £10 billion (Figure 3), continuing a period of investment from last quarter. However, in 2012 as a whole, institutions reported net disinvestment in gilts of £7 billion. This recent reversal in favour of investment in gilts may reflect a change of investment strategy among some market participants. The net investment data for Q4 2012, Q1 2013 and Q2 2013 would seem to suggest that some investors (particularly pension funds, who were responsible for £7 billion net investment in gilts at Q1 2013 and £6 billion at Q2 2013) are switching back to gilts, possibly in an attempt to beat the volatility of equity markets.

It will be interesting to see if this trend continues or whether the institutions covered by this release start to disinvest in gilts moving forward. On 28 August 2013, the Financial Times reported that “UK long-term borrowing costs rose to fresh two-year highs...amid growing worries among bond investors that the gilts bull run, one of the longest in the market place, had finally come to an end”.

Investment trends in gilts can best be explained by reviewing the role they play in financial markets. Gilts are attractive investments when interest rates are high and are likely to fall. If interest rates fall the price of the gilt rises and may therefore be sold at a profit. Conversely, if interest rates are low, as they are at present and have been since early 2009, the price of gilts is high and a loss might be anticipated if the stock is held to redemption. These characteristics, coupled with the completion of the Bank of England’s most recent asset purchase programme, helps to explain the longer term profile of net investment in gilts.

Figure 3: Net investment in British government sterling securities (gilts)

Figure 3: Net investment in British government sterling securities (gilts)
Source: Office for National Statistics

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UK corporate securities and overseas securities

The last survey of these businesses’ balance sheets, for the end of 2011, showed that for only the second time, the value of overseas ordinary shares held by these institutions exceeded the value of UK ordinary shares. This is a recent trend, which was seen for the first time in 2010. It would appear that this trend continued for a third year in 2012 (though we would need data from the annual balance sheet surveys to be sure). This change in strategy over the past three years marks a key shift and would seem to indicate that the institutions covered by this release have sought higher returns on their investments in overseas markets in preference to investing in UK securities.

At Q2 2013 there was a small level of net investment (£2 billion) in UK corporate securities (Figure 4). This follows net disinvestment in UK corporate securities of £4 billion during Q1 2013 and £5 billion during Q4 2012 and may reflect either the reallocation of funds towards short-term assets as part of a wider change in investment strategy or the continued favouring of overseas securities.

As reported last quarter there was disinvestment in overseas securities at Q1 2013 for the first time since Q4 2008. It would appear that this was a single quarterly period of net disinvestment, as hypothesised at the time, rather than the start of a longer-term trend of disinvestment. At Q2 2013 the institutions covered by this release reported net investment in overseas securities of £11 billion (Figure 5).

Figure 4: Net investment in UK corporate securities

Figure 4: Net investment in UK corporate securities
Source: Office for National Statistics

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Figure 5: Net investment in overseas securities

Figure 5: Net investment in overseas securities
Source: Office for National Statistics

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Other assets

The category ‘other assets’ covers UK and overseas investment, and includes: British government securities denominated in foreign currency; local authority and public corporation securities; loans; mutual fund investments; fixed assets; investment in insurance managed funds, insurance policies and annuities; direct investment and other assets not elsewhere classified.

Investment in other assets has been positive since Q3 2003. In the second quarter of 2013, there was net investment of £6 billion (Figure 6). This level of net investment is broadly in line with the five year average for this quarterly series (£7 billion), but substantially lower than the high estimates returned for Q4 2009, Q3 2010 and Q4 2010 (£14 billion, £14 billion and £12 billion respectively).

Figure 6: Net investment in other assets

Figure 6: Net investment in other assets
Source: Office for National Statistics

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Table 1: Net investment by asset type

£ billion
  Total Short-term assets British government sterling securities UK corporate securities Overseas securities Other assets
             
2007  83.5 41.1 -0.4 -16.5 44.2 15.0
2008  26.0 -4.8 -19.6 7.4 15.3 27.8
2009  90.0 -4.2 13.9 9.1 43.3 27.8
2010  67.5 -7.6 29.2 -18.5 24.8 39.6
2011  24.3 10.9 -0.8 -25.5 13.3 26.3
2012  67.5 13.7 -7.4 -10.6 51.0 20.7
             
2007Q3 42.6 19.2 -5.1 5.2 18.0 5.3
Q4 4.4 9.4 0.0 -12.8 2.0 5.8
             
2008Q1 10.6 5.5 -6.6 3.3 3.7 4.7
Q2 12.2 -0.3 -4.7 -0.1 8.6 8.7
Q3 22.7 10.6 -2.2 2.8 7.3 4.3
Q4 -19.5 -20.5 -6.1 1.4 -4.3 10.1
             
2009Q1 8.0 -0.3 0.8 2.9 4.4 0.3
Q2 36.9 0.8 3.3 7.3 17.7 7.7
Q3 20.5 -8.0 8.2 1.7 13.0 5.6
Q4 24.6 3.3 1.6 -2.8 8.2 14.2
             
2010Q1 6.6 -1.1 8.6 -8.8 1.9 6.1
Q2 5.6 -10.8 8.1 0.7 0.4 7.2
Q3 27.2 -5.4 4.9 -0.2 13.7 14.2
Q4 28.1 9.7 7.7 -10.3 8.9 12.1
             
2011Q1 11.0 9.7 -0.2 -5.6 2.0 5.0
Q2 10.1 4.1 1.5 -3.0 3.9 3.6
Q3 2.5 -6.1 -3.4 -3.3 5.9 9.5
Q4 0.7 3.2 1.3 -13.5 1.5 8.2
             
2012Q1 23.8 14.2 -6.8 -4.9 15.0 6.3
Q2 9.1 -5.0 -0.9 -2.0 10.6 6.4
Q3 24.2 5.2 -1.3 1.6 15.0 3.9
Q4 10.3 -0.6 1.5 -5.2 10.5 4.2
             
2013Q1 20.9 18.4 4.8 -3.7 -1.3 2.8
Q2 34.7 6.2 10.2 1.8 10.9 5.6
             

Table source: Office for National Statistics

Table notes:

  1. Components may not sum to totals due to rounding.
  2. Data for all quarters of 2012 remain provisional and subject to revision until the incorporation of the 2012 annual survey results in December 2013. Similarly, data for all periods of 2013 will remain provisional until December 2014.

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Net investment by institutional group

Net investment data for each of the institutional groups covered by this release are displayed in Table 2.

Long-term insurance companies

These are companies which undertake life assurance, pensions and critical illness business. Such companies provide either protection in the form of life assurance or critical illness policies or investment, in the form of pension provision.

Long-term insurance companies showed net investment of £4 billion at the second quarter of 2013 (Figure 7). This is the second consecutive quarter of net investment following sizable net disinvestment of £10 billion at Q4 2012.

Figure 7: Net investment by long-term insurance companies

Figure 7: Net investment by long-term insurance companies
Source: Office for National Statistics

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General insurance companies

These are companies which undertake other types of insurance, such as motor, home and travel. This type of insurance is usually over a shorter period, more commonly 12 months.

General insurance companies are estimated to have shown a small level of net investment at Q2 2013 of £1 billion (Figure 8). This level of net investment is in line with the five year quarterly average for this series (£1 billion). The largest single quarterly estimate over the past six years was at Q1 2010, when general insurance companies reported net disinvestment of £6 billion, which was driven by the disposal of gilts and is likely to be a direct consequence of the Bank of England’s Quantitative Easing (QE) programme. As explained by the BBC, “under QE a central bank purchases government bonds from private sector companies or institutions, typically insurance companies, pension funds and high street banks. This increased demand for the government bonds pushes up their value, thereby making them more expensive to buy, and so they become a less attractive investment”.

Figure 8: Net investment by general insurance companies

Figure 8: Net investment by general insurance companies
Source: Office for National Statistics

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Self-administered pension funds

These are funds established by employers to facilitate and organise the investment of employees’ retirement funds.

Self-administered pension funds showed net investment at Q2 2013 of £17 billion (Figure 9). This is a quarterly record for this series, which goes back to 1983.

Of particular note, self-administered pension funds reported high levels of net investment into gilts at Q2 2013 of £6 billion. Commenting on a survey of European pension funds undertaken by Mercer, the Financial Times reported on 19 May 2013 that “pension funds have been slowly switching back to bonds in an attempt to beat the volatility of equity markets and receive guaranteed income streams to meet pension payments”.

The current level of net investment by self-administered pension funds for 2012 (£36 billion) is an annual record for this series, which goes back to 1964.

Figure 9: Net investment by self-administered pension funds

Figure 9: Net investment by self-administered pension funds
Source: Office for National Statistics

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Investment trusts

Investment trusts acquire financial assets with money subscribed by shareholders or borrowed in the form of loan capital. Investment trusts are not trusts in the legal sense, but are limited companies with two special characteristics: their assets consist of securities (mainly ordinary shares) and they are debarred by their articles of association from distributing capital gains as dividends. Shares of investment trusts are traded on the Stock Exchange and increasingly can be bought direct from the company.

The trend in the estimates for investment trusts continued broadly flat as it has been since the beginning of 2008 (Table 2).

Unit trusts and property unit trusts

Unit trusts include open-ended investment companies but they do not cover other unitised collective investment schemes or those based offshore. Unit trusts are set up under trust deeds, the trustee usually being a bank or insurance company. The funds in the trusts are managed not by the trustees, but by independent management companies. Units representing a share in the trusts’ assets can be bought from the managers or resold to them at any time.

Property unit trusts are not allowed to promote themselves to the general public and participation is generally restricted to pension funds and charities. Property unit trusts invest predominantly in freehold or leasehold commercial property yet may hold a small proportion of their investments in the securities of property companies.

Unit trusts and property unit trusts continued to invest in the second quarter of 2013, their 22nd successive quarter of net investment (Figure 10). The level of net investment by unit trusts and property unit trusts at Q2 2013 (£15 billion) is only £3 billion lower than the highest recorded estimate (Q4 2012) since quarterly records began in 1987. The most recent four quarters have seen net investment of almost £65 billion, the highest value for four consecutive quarters since records began.

The provisional full year estimate for 2012 is the highest single year estimate of net investment (£53 billion) for this institutional group and the highest for any institutional group ever recorded. To place this estimate in context, the fourth highest annual figure of £47 billion was also reported by unit trusts and property unit trusts in 2009. The second and third highest annual estimates of £53 billion and £47 billion were reported by long-term insurance companies in 1999 and 2005 respectively.

In support of the recent high estimates for investments by unit and property trusts are statistics released by the Investment Management Association in its annual 2012 press release. It reported that funds under management reached a record level of £658 billion by the end of 2012, an increase of £82 billion since the end of 2011.

Figure 10: Net investment by unit trusts and property unit trusts

Figure 10: Net investment by unit trusts and property unit trusts
Source: Office for National Statistics

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Table 2: Net investment by institutional group

£ billion
  Long-term insurance companies General insurance companies Self-administered pension funds Investment trusts Unit  trusts and property unit trusts Consolidation adjustment1
             
2007 39.5 5.0 13.3 -2.8 32.8 -4.2
2008 17.0 9.4 -20.4 0.3 17.7 2.0
2009 5.9 4.9 32.9 -0.6 46.8 0.1
2010 15.6 -3.2 19.7 0.5 44.0 -9.1
2011 -4.2 2.3 8.6 0.4 30.3 -13.0
2012 -9.8 4.7 36.3 -0.1 53.3 -17.0
             
2007Q3 15.8 1.5 9.0 -0.4 11.1 5.5
Q4 5.8 5.3 -0.2 -1.2 -0.9 -4.5
             
2008Q1 9.9 0.8 -3.9 0.6 6.5 -3.2
Q2 6.8 3.3 0.9 -0.7 3.5 -1.8
Q3 11.4 4.5 0.1 0.8 5.1 0.7
Q4 -11.1 0.7 -17.6 -0.4 2.6 6.3
             
2009Q1 0.8 1.4 2.6 -0.3 7.9 -4.4
Q2 12.2 1.6 13.8 -0.2 11.0 -1.5
Q3 1.2 -0.8 8.0 0.1 15.6 -3.6
Q4 -8.4 2.7 8.6 -0.2 12.3 9.7
             
2010Q1 1.1 -6.5 -0.1 -0.7 7.9 4.9
Q2 2.7 0.4 -6.3 0.7 15.2 -7.0
Q3 7.4 0.8 15.1 0.0 7.4 -3.4
Q4 4.5 2.0 11.0 0.5 13.6 -3.6
             
2011Q1 -5.6 -1.4 11.1 0.6 5.5 0.7
Q2 5.1 1.4 -2.9 0.3 9.6 -3.4
Q3 1.3 1.4 -1.6 -0.1 9.6 -8.1
Q4 -4.9 0.9 2.1 -0.5 5.5 -2.3
             
2012Q1 0.5 2.3 12.9 0.2 11.2 -3.3
Q2 1.5 0.6 -1.4 0.0 9.2 -0.8
Q3 -2.1 1.8 15.3 -0.5 15.1 -5.3
Q4 -9.7 0.1 9.4 0.2 17.9 -7.6
             
2013Q1 5.5 1.4 3.3 0.5 16.9 -6.7
Q2 3.8 1.2 17.0 0.1 14.9 -2.2
             

Table source: Office for National Statistics

Table notes:

  1. The consolidation adjustment is an adjustment to remove inter-sectoral flows between the different types of institution covered. The adjustment includes (i) investment in authorised unit trust units, open-ended investment companies and investment trust securities by insurance companies, pension funds and trusts and (ii) investment by pension funds in insurance managed funds and property unit trust units.
  2. Components may not sum to totals due to rounding.
  3. Data for all quarters of 2012 remain provisional and subject to revision until the incorporation of the 2012 annual survey results in December 2013. Similarly, data for all periods of 2013 will remain provisional until December 2014.

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Income and expenditure by institutional group

Rather than provide commentary on total income and expenditure for the institutional groups, it is considered more beneficial to users, based on their feedback, if commentary concentrates on the main components. For insurance companies, premiums and claims are the focus, while contributions (net) and payments are the focus for self-administered pension funds (Table 3). It should be noted that no income and expenditure data are currently collected for the trusts institutional group.

Long-term insurance companies

Long-term insurance premiums, at £30 billion in the second quarter of 2013 (Figure 11), were at a similar level to all quarters of the past four years, but were slightly above the five year quarterly average of £28 billion.

In 2006 and 2007 the value of premiums exceeded the value of claims. This trend has been reversed since and has continued into 2013. In each of the years 2008 to 2010, the value of claims was around 23% greater than the value of premiums. In 2012, claims amounted to £143 billion against premiums of £114 billion (a 26% difference). At Q2 2013, claims (£39 billion) were 29% greater than the value of premiums (£30 billion).

Figure 11: Long-term insurance companies' premiums and claims

Figure 11: Long-term insurance companies' premiums and claims
Source: Office for National Statistics

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General insurance companies

For general insurance, premiums (£10 billion) were 63% greater than the value of claims (£6 billion) at Q2 2013 (Figure 12). These series have remained relatively unchanged for the past six years.

Figure 12: General insurance companies' premiums and claims

Figure 12: General insurance companies' premiums and claims
Source: Office for National Statistics

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Self-administered pension funds

Contributions (net) to self-administered pension funds for the second quarter of 2013 (£11 billion) were broadly in-line with contributions for the second quarters of 2012 and 2011 (both £10 billion).

The revised Q1 2013 estimate of £16 billion is further evidence that there would seem to be a pattern of behaviour for funds to make one-off payments to reduce the deficits in their funds at Q1 and Q4 of a given year. This leads to a tendency for net contributions figures in the first and fourth quarters to be higher than those for the other quarters of the year (Figure 13). A possible explanation for this pattern is that companies, while compiling their end-of-year accounts, are better placed to determine by how much they are able to reduce the gap between the assets and liabilities of their pension funds.

Figure 13: Self-administered pension funds' contributions (net) and payments

Figure 13: Self-administered pension funds' contributions (net) and payments
Source: Office for National Statistics

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Table 3: Income and expenditure by institutional group

£ billion
  Long-term insurance General insurance Self-administered pension funds
  Premiums Claims Premiums Claims  Contributions (net) Payments
             
2007 166.2 156.9 36.9 24.3 38.7 39.1
2008 135.1 166.9 41.7 26.1 34.3 41.1
2009 114.6 141.1 39.5 26.4 37.7 44.5
2010 111.2 136.1 34.3 24.8 45.6 48.3
2011 106.1 139.5 35.4 24.1 43.6 48.8
2012 113.8 143.0 37.8 24.1 48.4 51.3
             
2007Q3 47.0 37.6 9.4 5.9 8.7 9.7
Q4 32.8 39.6 9.7 6.4 10.1 10.3
             
2008Q1 29.6 38.8 11.6 6.9 10.1 9.8
Q2 40.8 41.1 10.1 6.5 8.2 10.1
Q3 36.1 39.9 10.1 6.1 7.8 10.5
Q4 28.6 47.1 9.9 6.7 8.2 10.7
             
2009Q1 27.0 32.6 9.7 6.8 10.2 10.3
Q2 28.0 27.9 10.8 6.5 7.7 11.2
Q3 29.5 35.4 10.0 6.5 8.1 11.4
Q4 30.1 45.1 9.0 6.6 11.7 11.6
             
2010Q1 29.3 38.3 7.9 5.9 11.9 12.0
Q2 29.0 33.2 9.0 5.9 11.5 12.2
Q3 23.1 30.3 8.8 6.2 10.3 12.1
Q4 29.8 34.3 8.6 6.7 11.9 12.0
             
2011Q1 26.3 36.6 8.8 6.8 12.4 11.8
Q2 27.8 34.2 9.5 5.7 9.8 12.5
Q3 25.6 31.1 8.7 5.8 9.4 12.4
Q4 26.3 37.5 8.4 5.8 12.0 12.2
             
2012Q1 27.1 34.1 9.5 6.3 16.5 12.5
Q2 28.4 36.4 10.0 5.7 10.3 13.0
Q3 26.5 35.7 9.4 5.8 10.3 12.5
Q4 31.8 36.9 8.9 6.2 11.3 13.4
             
2013Q1 23.7 35.0 10.2 6.2 16.0 13.0
Q2 30.4 39.1 10.1 6.2 10.7 13.3
             

Table source: Office for National Statistics

Table notes:

  1. Components may not sum to totals due to rounding.
  2. Data for all quarters of 2012 remain provisional and subject to revision until the incorporation of the 2012 annual survey results in December 2013. Similarly, data for all periods of 2013 will remain provisional until December 2014.

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Background notes

  1. Institutional groups

    Insurance companies

    Active in both life insurance and non-life (general) insurance, they also conduct pension business on behalf of companies and individuals. Long-term business (mainly life insurance and pensions) has an emphasis on the spreading of risks over time, whereas general business (mainly house, motor and travel insurance) is largely concerned with the spreading of risks between persons and organisations.

    Besides consisting largely of life insurance, long-term business also includes occupational and individual pension business. Pension business includes both insured funds and insurance managed funds. Insured funds belong to pension schemes where the schemes’ trustees hold, as a sole asset, an insurance policy contract or an annuity contract. All the schemes’ assets are held in one insurance company and have a guaranteed level of return.

    The figures for long-term funds include items relating to shareholders' funds in respect of pure life companies. For other companies these items are consolidated into the figures for general funds.

    Self-administered pension funds

    The data in this release relate to the self-administered pension and superannuation funds of the private sector and to the funded, self-administered schemes of local authorities and employees previously employed in the nationalised industries.

    Insurance managed funds are included in the self-administered pension funds statistics. The main superannuation arrangements in central government are unfunded and these are excluded from the statistics. Fully insured funds are also excluded but their activity is included in figures for insurance companies' long-term business.

    A self-administered pension scheme is defined as an occupational pension scheme with units invested in one or more managed schemes or unit trusts. The trustees of these types of schemes can employ either an in-house fund manager to make the day-to-day investment decisions or they can opt to use an external manager to manage the investment.

    Investment trusts

    The figures cover investment trusts recognised as such by HM Revenue & Customs for tax purposes and some unrecognised trusts. Investment trusts companies acquire financial assets with money subscribed by shareholders or borrowed in the form of loan capital. They are not trusts in the legal sense, but are limited companies with two special characteristics: their assets consist of securities (mainly ordinary shares) and they are debarred by their articles of association from distributing capital gains as dividends. Shares of investment trusts are traded on the Stock Exchange and increasingly can be bought direct from the company.

    Unit trusts

    The data covers unit trusts authorised by the Financial Conduct Authority under the terms of the Financial Services and Markets Act 2000. The statistics include open-ended investment companies but they do not cover other unitised collective investment schemes (for example unauthorised funds run on unit trust lines by, for example, securities firms and merchant banks, designed primarily for the use of institutional investors) or those based offshore (Channel Islands, Bermuda etc.) or in other EU member states. Unit trusts are set up under trust deeds, the trustee usually being a bank or insurance company. The funds in the trusts are managed not by the trustees, but by independent management companies. Units representing a share in the trusts’ assets can be bought from the managers or resold to them at any time.

    Property unit trusts

    The statistics aim to cover all UK property unit trusts authorised under the terms of the Financial Services and Markets Act 2000. The trusts are not allowed to promote themselves to the general public and participation is generally restricted to pension funds and charities. Property unit trusts invest predominantly in freehold or leasehold commercial property yet may hold a small proportion of their investments in the securities of property companies. Their assets are held in the name of a trustee and are managed on a co-operative basis by a separate committee (elected by the unit holders) or company.

  2. Basic quality information

    A Quality and Methodology Information (270.2 Kb Pdf) (QMI) report can be found on the Office for National Statistics (ONS) website. The aims of the QMI report are to provide users with a greater understanding of ONS’s statistics, their quality and the methods that are used to create them.

  3. Uses of data

    The primary use of data from the insurance companies, pension funds and trusts surveys is in the Financial and Sector Accounts and the compilation of Gross Domestic Product (GDP) estimates within the UK National Accounts and the UK Balance of Payments. There are numerous other users within and outside government who use the data to produce various financial analyses and to inform policy decisions. Such users include:

    Bank of England: Data are used for monetary policy and financial stability monitoring.

    Department for Work & Pensions: Specifically interested in the investment activity of pension funds, and any pension business undertaken by insurance companies.

    HM Revenue and Customs : Data are used to aid taxation analysis of financial institutions.

    Association of British Insurers: Compare its own data to that of ONS, to ensure both datasets display similar trends.

    Department for Business, Innovation and Skills: Use data to analyse investment activity across various financial instruments.

    Debt Management Office: Data are used to monitor the investment activity in British government securities (gilts).

    Investment Management Association: Compare its own data to that of ONS to ensure both datasets display similar trends. They also use the data to provide an overall view of the UK savings and pensions markets and the components that make it up.

    European Union’s Statistical Office (Eurostat): Use data to compile statistics at a European level to enable comparisons between countries and to support the development of European fiscal policy.

    Organisation for Economic Co-operation & Development (OECD): Analyse investment activity to help formulate economic growth and financial stability recommendations for member countries.

    Trade associations, city analysts, institutional investors and fund managers use these data for modelling or forecasting purposes and also to track asset allocation trends. Academics and journalists also use the data for research purposes.

  4. User engagement

    We are constantly aiming to improve this release and its associated commentary. We would welcome any feedback you might have, and would also be particularly interested in knowing how you make use of these data to inform your work. Please contact us via email: Financial.Inquiries@ons.gsi.gov.uk or telephone David Matthews on +44 (0)1633 456756.

    Following the success of last year's business statistics user event a second all-day event, coordinated jointly with the Department for Business, Innovation and Skills (BIS), will take place on 24 September 2013. The event, The Changing Shape of Trade and Investment in the UK, will feature a range of talks from users, producers and suppliers of business trade and investment statistics, not just from central government and the devolved administrations, but also local government, media, business representatives and researchers. More information on how to register for the event can be found on the ABS News Page.

    There is a Business and Trade Statistics community on the StatsUserNet website. For more information, see background note 14.

  5. International comparisons

    It is difficult meaningfully to compare the ‘Investment by Insurance Companies, Pension Funds and Trusts’ release with that of other countries. This is largely due to different rules and regulations surrounding insurance and pension provision, and also because other countries don’t combine data for these specific institutional groups into a single detailed publication. The focus for other countries is frequently on collecting the data for National Accounts purposes, not on producing a separate publication for these institutional groups.

    Many countries around the world use different sources to collect these data. In some cases the data collection is split between the national statistical office and the central bank (Belgium) or the industry regulator (Finland). The periodicity of data collection also varies between countries; some collect data quarterly (Sweden), others on an annual basis (New Zealand). In addition, some countries use a transactions approach (UK) to data collection, while others prefer a balance sheet style (Ireland).

    International bodies such as the OECD compare institutional investment data across countries to help formulate economic growth and financial stability recommendations.

  6. Revisions

    Data for all quarters of 2012 remain provisional and subject to revision until the incorporation of the 2012 annual survey results in December 2013. Similarly, data for all periods of 2013 will remain provisional until December 2014.

    A revisions policy (50.7 Kb Pdf) is available to assist users with their understanding of the cycle and frequency of data revisions. Users of this release are strongly advised to read this policy before using the data for research or policy related purposes.

    Quarterly
    Data for Q1 2013 have been revised, partly as a result of late questionnaires being received and partly as a result of disaggregate data revisions. Net investment has been revised upwards from £16 billion to £21 billion. No revisions were made to the quarters of 2012.

    Revisions to data provide one indication of the reliability of key indicators. The table below compares the first published estimate for total net investment with the equivalent figure published three years later. The data start with the first estimate published for Q3 2005 (in December 2005) and compares this with the estimate for the same quarter published three years later (in December 2008). The difference between these two estimates is calculated and this process is repeated for five years of data (all quarters up to Q2 2010). The averages of this difference (with and without regard to sign) are shown in the right hand columns of the table. These can be compared with the value of the estimate in the latest quarter. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows if the test is significant.

    Table 4: Revisions between first publication and estimates three years later

    £ billion
      Value in latest quarter  Average revision Average revision without regard to sign
           
    Total net investment 34.7 1.1 5.2
           

    Table source: Office for National Statistics

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    A spreadsheet is available giving a revisions triangle (377 Kb Excel sheet) of estimates from 1996 to date and the calculations behind the averages in the table.

    Annual
    The introduction of annual survey results with the third quarter figures each year leads to revisions of the published quarterly estimates, both to income and expenditure, and to transactions data. Revisions to transactions data are usually caused by problems with quarterly misreporting of data by businesses, which are identified as part of the quality assurance of the corresponding annual survey returns made by the businesses.

    For income and expenditure, the revisions are due to the incorporation of the annual insurance survey results, which are based on larger samples and also, generally reflect audited accounts. It is important to note that for both the pension funds and trusts sectors an annual income and expenditure survey is not undertaken.

    For each ‘set’ of surveys (for example, quarterly transactions and quarterly income and expenditure surveys for pension funds) there is a common sample, but each survey is conducted independently, which can result in different response rates. In some instances individual survey questionnaires are completed by different people within the same business, and with limited linkage within existing systems between the surveys at the individual respondent level. Therefore, there can be discrepancies at an aggregate level between the numbers emerging from the transactions and income and expenditure surveys. The set of annual surveys includes balance sheet data from the insurance companies and pension funds sectors. This allows the data to be ‘aligned’ so that transactions, income and expenditure and the balance sheet are consistent. The alignment process assumes that the transactions data are the weakest of the three strands of information and therefore takes the necessary adjustment. This assumption has been confirmed by contact with respondents when data have been queried. It is important to note that no alignment process is currently undertaken for the trusts sector.

    The following table shows the average absolute values and revisions (without regard to sign), over the last five years (2007 to 2011), arising from the take-on of the annual survey results. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows if the test is significant.

    Table 5: Average values and revisions (2007 to 2011)

    £ billion
      Average absolute values Average absolute revisions
         
    Long-term insurance companies  
         Total income 186.7 11.1
         Total expenditure 197.2 6.6*
         Net investment 14.8 13.0*
         
    General insurance companies  
         Total income 44.5 2.1
         Total expenditure 43.6 2.5
         Net investment 3.7 2.6
         
    Self-administered pension funds  
         Net investment 10.8 12.1
         
    Total net investment 58.3 17.3
         

    Table source: Office for National Statistics

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  7. Response rates

    The figures in this release are based on a system of quarterly and annual surveys collecting data on income and expenditure, transactions in financial assets and the balance sheet in separate surveys.

    Table 6: Overall response rate by survey

    Q2 2013   %
         
    Transactions    
         Long-term insurance companies 92
         General insurance companies 94
         Self-administered pension funds 84
         Unit trusts   98
         Investment trusts 87
         Property unit trusts 82
         
    Income and expenditure  
         Long-term insurance companies 93
         General insurance companies 95
         Self-administered pension funds 83
         
    2011 Annual   %
         
    Balance sheet    
         Long-term insurance companies 100
         General insurance companies 99
         Self-administered pension funds 93
         
    Income and expenditure  
         Long-term insurance companies 100
         General insurance companies 100
         
    Assets and liabilities  
         Unit trusts   82
         Investment trusts 94
         Property unit trusts 85

    Table source: Office for National Statistics

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  8. General information

    These points should be noted when examining reference tables (1.69 Mb Excel sheet) :

    • Total pension contributions made to funded schemes cannot be derived by summing pension premiums from table 2.4 and contributions from table 4.3. To do so would result in double counting since pension business premiums in table 2.4 include any premiums (including transfers) received from self-administered pension funds and any transfers within the long-term insurance sector. More information on this and on other work undertaken to improve pension statistics as part of the 2002 pension contributions statistics review can be found on the ONS website. These pages include a discussion note (25.5 Kb Pdf) on how insurance companies have been recording pension transactions in the surveys used as a source for this release and on improvements made to the survey questionnaires from the first quarter of 2004 to prevent mis-reporting.

    • Certificates of deposits issued by overseas banks are included in short-term assets overseas.

    • An increase in borrowing is indicated by a positive figure, a decrease by a negative figure.

    • Total net investment for long-term funds includes investment by self-administered pension funds in insured funds.

    • Loans to a parent authority by local authority funds are included with UK local authority securities.

    • The consolidation adjustment is an adjustment to remove inter-sectoral flows between the different types of financial institution covered by this release. It has been calculated by identifying and calculating totals for net investment in mutual funds such as authorised unit trust units, investment trust securities and insurance managed funds by the institutions.

    • Components in tables denominated in £ billion may not sum to totals due to rounding.

    To try to make the many reference tables that underpin this release more intuitive and easier to understand, the content, structure and layout of the tables have been reviewed. As a result, a small number of individual data series (sub-totals and aggregates) have been removed due to them adding little value; some tables have been merged; the descriptions of many data series have been improved; and more informative footnotes have been added to the tables.

    Tables 7, 8, 9, 10 and 11 display the removed series (by institutional group); along with their individual formulae so that users can continue to derive the series should they feel it necessary.

    Table 7: Discontinued data series for combined insurance

    Series identifier 1 Formulae 2 Periodicity
         
    JFK5 RAZR - JFK6 Quarterly
         
    RBQC (RWEF - JFK9) - RBNL Quarterly
         
    RBRJ RWEF - RBNL Quarterly
         
    RBWW (RYPF + RYPA + RYPB + RYPC + RYPD + RYPH + RKAC + RYMF + RYMG + RYMH + RYMI + RYPN)y - (RYPF + RYPA + RYPB + RYPC + RYPD + RYPH + RKAC + RYMF + RYMG + RYMH + RYMI + RYPN)y-1 Annual
         
    RBWY  -((KVE9 + RYPL + KVF2 + RYPR)y - (KVE9 + RYPL + KVF2 + RYPR)y-1) Annual
         
    RBWZ RBRJ + RBWW + RBWY Annual
         
    RCNF RAZS + JX84 + RCMW Annual
         
    RCVU RCNG + RCNH + RCOI + RCVF + RCVG Annual
         
    RCVV RCLP + RAZS + JX84 + RCMW + RCNG + RCNH + RCOI + RCVF + RCVG   Annual
         
    RDCZ (RCLP + RAZS + JX84 + RCMW + RCNG + RCNH + RCOI + RCVF + RCVG) - RBNZ Annual
         

    Table source: Office for National Statistics

    Table notes:

    1. To derive series RBWZ, its components listed in the table need to be calculated first.
    2. Where subscripts appear in formulae, y refers to data for the current year, y-1 to data for the previous year.

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    Table 8: Discontinued data series for long-term insurance

    Series identifier1 Formulae 2 Periodicity
         
    IX97 RYFT - ICPH Quarterly
         
    RYFU (RCAA - ICXG) - AHPI Quarterly
         
    AHPA RCAA - AHPI Quarterly
         
    AHPY (RYPF + RYPA + RYPB + RYPC + RYPD + RYPH)y - (RYPF + RYPA + RYPB + RYPC + RYPD + RYPH)y-1 Annual
         
    AHGZ  -((KVE9 + RYPL)y - (KVE9 + RYPL)y-1) Annual
         
    AHQE AHPA + AHPY + AHGZ Annual
         
    RFXF RYEW + IFKX + RYPF Annual
         
    RFXM RYPA + RYPB + RYPC + RYPD + RYPH Annual
         
    RFXN RYES + RYEW + IFKX + RYPF + RYPA + RYPB + RYPC + RYPD + RYPH   Annual
         
    RGGR (RYES + RYEW + IFKX + RYPF + RYPA + RYPB + RYPC + RYPD + RYPH) - AHNI Annual
         

    Table source: Office for National Statistics

    Table notes:

    1. To derive series AHQE, its components listed in the table need to be calculated first.
    2. Where subscripts appear in formulae, y refers to data for the current year, y-1 to data for the previous year.

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    Table 9: Discontinued data series for general insurance

    Series identifier1 Formulae 2 Periodicity
         
    IX98 RYLQ - ICXJ Quarterly
         
    RYLS (RFUC - IFHH) - AHOI Quarterly
         
    AHOA RFUC - AHOI Quarterly
         
    AHOX (RKAC + RYMF + RYMG + RYMH + RYMI + RYPN)y - (RKAC + RYMF + RYMG + RYMH + RYMI + RYPN)y-1 Annual
         
    AHXY  -((KVF2 + RYPR)y - (KVF2 + RYPR)y-1) Annual
         
    AHQB AHOA + AHOX + AHXY Annual
         
    RKAE RYME + IFVJ + RKAC Annual
         
    RKAK RYMF + RYMG + RYMH + RYMI + RYPN Annual
         
    RKAL RYNP + RYME + IFVJ + RKAC + RYMF + RYMG + RYMH + RYMI + RYPN   Annual
         
    RKAQ (RYNP + RYME + IFVJ + RKAC + RYMF + RYMG + RYMH + RYMI + RYPN) - AHMI Annual
         

    Table source: Office for National Statistics

    Table notes:

    1. To derive series AHQB, its components listed in the table need to be calculated first.
    2. Where subscripts appear in formulae, y refers to data for the current year, y-1 to data for the previous year.

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    Table 10: Discontinued data series for self-administered pension funds

    Series identifier 1 Formulae 2 Periodicity
         
    GQEF RYKP - IX9K Quarterly
         
    AHQN RZNI - GQEC Quarterly
         
    RYKQ (RYIM + RYIN + RYIO)y - (RYIM + RYIN + RYIO)y-1 Annual
         
    RYKR  -((RYIT + RYIU + JRP9 + GKGR)y - (RYIT + RYIU + JRP9 + GKGR)y-1) Annual
         
    AHRR AHQN + RYKQ + RYKR Annual
         
    RKIG GNOR + JX5Q + GNOW + GNOX + IX8H + IX9J + AHVF + GQFR + GOZR + GOZS + JX5W Annual
         
    RYIP RYIL + RYIM + RYIN + RYIO Annual
         
    RYIQ GNOR + JX5Q + GNOW + GNOX + IX8H + IX9J + AHVF + GQFR + GOZR + GOZS + JX5W + RYIL + RYIM + RYIN + RYIO + JRO3 + GOJU Annual
         
    RKQJ RKQA + GLZL + GLZN Quarterly
         
    RKIT RKQN + RKQO + RKQP Quarterly
         

    Table source: Office for National Statistics

    Table notes:

    1. To derive series AHRR, its components listed in the table need to be calculated first.
    2. Where subscripts appear in formulae, y refers to data for the current year, y-1 to data for the previous year.

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    Table 11: Discontinued data series for trusts

    Institutional group Series identifier Formulae Periodicity
           
    Investment trusts CBHN CBGB - CBHP Quarterly
           
    Unit trusts and RLLO CBHY - RLLP Quarterly
    property unit trusts      
           

    Table source: Office for National Statistics

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  9. Definitions and symbols used

    †   data have been revised since the last edition; the period marked is the earliest to have been revised.
    ..   not available.
    -    nil or less than £0.5 million.

  10. Disclosure

    It is sometimes necessary to suppress figures for certain items in order to avoid disclosing investment activity by individual institutions. In these cases the figures are usually combined with those for another item and this will be indicated in the tables by means of a footnote.

  11. National Statistics

    The United Kingdom Statistics Authority has designated these statistics as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Official Statistics.

    Designation can be broadly interpreted to mean that the statistics:

    • meet identified user needs;

    • are well explained and readily accessible;

    • are produced according to sound methods, and

    • are managed impartially and objectively in the public interest.

    Once statistics have been designated as National Statistics it is a statutory requirement that the Code of Practice shall continue to be observed.

  12. Social media

    Follow ONS on Twitter 

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    Watch our videos on YouTube.

  13. Government Statistical Service (GSS) business statistics

    To find out about other official business statistics, and choose the right data for your needs, use the GSS Business Statistics Interactive User Guide. By selecting your topics of interest, the tool will pinpoint publications that should be of interest to you, and provide you with links to more detailed information and the relevant statistical releases. It also offers guidance on which statistics are appropriate for different uses.

  14. Discussing ONS business statistics online

    There is a Business and Trade Statistics community on the StatsUserNet website. StatsUserNet is the Royal Statistical Society’s interactive site for users of official statistics. The community objectives are to promote dialogue and share information between users and producers of official business and trade statistics about the structure, content and performance of businesses within the UK. Anyone can join the discussions by registering via either of the links above.

  15. Special events

    ONS has published commentary, analysis and policy on 'Special Events' which may affect statistical outputs. For full details visit the Special Events page on the ONS website.

  16. Release policy

    All data in this release can be downloaded free of charge from the ONS website. Here are the instructions to obtain a full time series of data from the statistical bulletin or release pages:

    • Select 'Data in this release';

    • Select 'View datasets associated with this release';

    • Select the latest release;

    • Select 'Select series from this dataset';

    • Select the reference table of interest;

    • Select 'View series';

    • Select the series of interest (Hint: for a custom download you can use SHIFT to select a range of series or CTRL to select multiple individual series);

    • Select 'View selection';

    • Select 'Download'.

  17. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

Statistical contacts

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