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Statistical bulletin: MQ5: Investment by Insurance Companies, Pension Funds and Trusts, Q4 2012 This product is designated as National Statistics

Key points

  • Total net investment by insurance companies, pension funds and trusts is estimated to have been £20 billion in the fourth quarter of 2012. This is slightly above the five year average for this quarterly series of £14 billion.
  • The net investment estimates indicate that these institutions may have more confidence in their ability to make money from overseas securities than they do from UK corporate securities.
  • The level of net investment by unit trusts and property unit trusts for Q4 2012, at £18 billion, is the highest recorded estimate since quarterly records began in 1987.
  • There would seem to be a pattern of behaviour for self-administered pension funds to make one-off payments to reduce the deficits in their funds at Q1 and Q4 of a given year, leading to a tendency for the figures for the first and fourth quarters to be higher than those for the other quarters of the year.

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 this 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’s 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 Q3 2012 (last quarter) has been revised upwards by £5 billion from £20 billion to £25 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 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 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 and disposed of approximately £1,500 billion of assets. Net investment is the difference between these substantial levels of acquisitions and disposals and can therefore be volatile. Table 1 displays net investment data by asset type.

Net investment is estimated to have been £20 billion at Q4 2012 (Figure 1). 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 £14 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 £76 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

Investment in short-term assets (those maturing within one year of their originating date) continued to be positive at Q4 2012, following net investment of £6 billion last quarter. 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 Q4 2012, net investment in short-term assets of £1 billion (Figure 2) was reported by the businesses covered by this release. This is down from a recent peak in Q1 2012 of £14 billion.

Since Q4 2010 there have only been two quarters of disinvestment (Q3 2011 and Q2 2012). This contrasts with the period Q4 2008 to Q4 2010 (inclusive), when six of the nine quarters showed net disinvestment in short-term assets. This longer-term comparison highlights how institutions, taking account of the prevailing economic climate, have chosen to restructure their investment portfolios. The six year quarterly average for this series is net investment of £2 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 later date.

Since the end of 2008, the yield on gilts has tended to fall and, although this investment is effectively risk-free, the returns on it may cause fund managers to switch into or out of gilts. The fund managers of institutions covered by this release reported net investment in gilts at Q4 2012 of around £1 billion (Figure 3), halting a trend of disinvestment in gilts during 2012. However, in 2012 as a whole, institutions still reported net disinvestment in gilts of £9 billion. This is a change from 2011 when net investment was relatively flat and in stark contrast to 2010 when gilts attracted net investment of £29 billion, a record for this series, which goes back to 1984.

This trend can best be explained by reviewing the role that gilts play in financial markets. Gilts are useful investments to buy when interest rates are high and are likely to fall. If interest rates fall, the price of the stock rises and the gilts may be sold at a profit. Conversely, if interest rates are low, as they are at present and have been for the best part of four years, the price of gilts is high and a loss might be anticipated if the stock is held to redemption. For example, if investment managers were to buy a 10-year gilt today, the return on their investment would probably be less than inflation, so effectively their investment would be decreasing in value every day.

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 is continuing 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 more confidence in their ability to make money from overseas securities than they do from securities within the UK.

In 2012, as a whole, and for two of the four surveyed periods, there was disinvestment in UK corporate securities compared to strong investment in overseas securities in all four quarters of 2012 (Figures 4 and 5). The quarterly estimates for 2012 would seem to suggest that institutions are now investing more heavily in overseas securities than ever before. The latest net investment estimate for 2012 as a whole, at £53 billion, is a record in a series going back to 1986.

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

Investment in other assets has been positive since Q3 2003. In the fourth quarter of 2012, there was net investment of £2 billion (Figure 6). This level of investment is the lowest in this asset type since Q1 2009 and substantially lower than the recent high estimates returned for Q3 and Q4 2010 (£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   76.4 16.4 -9.1 -3.5 52.9 19.6
               
2007 Q1 15.4 1.2 7.9 -3.9 7.4 2.8
  Q2 21.1 11.3 -3.1 -5.0 16.8 1.1
  Q3 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
               
2008 Q1 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
               
2009 Q1 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
               
2010 Q1 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
               
2011 Q1 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
               
2012 Q1 23.1 14.5 -6.9 -5.3 14.5 6.3
  Q2 9.1 -5.5 -1.4 -1.5 10.6 6.8
  Q3 24.6 6.2 -2.0 1.4 14.9 4.1
  Q4 19.6 1.3 1.2 1.9 12.9 2.4

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.

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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 disinvestment of £4 billion (Figure 7) at the fourth quarter of 2012.

Of more significance, disinvestment is now estimated to have occurred in three of the four quarters of 2012 and for 2012 as a whole (£7 billion), only the second time this has occurred in this series which dates back to 1963. This is part of a continuing trend, which happened for the first time in 2011. This disinvestment was largely driven by a disposal of gilts and so may be a direct consequence of the Bank of England’s Quantitative Easing (QE) programme. As explained by the BBC in an article dated 7 March 2013, “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 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 very small level of net investment at Q4 2012 of £0.3 billion (Figure 8). This level of net investment is the same as the three year quarterly average for this series. 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.

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 Q4 2012 of £10 billion (Figure 9), continuing the trend of strong net investment reported last quarter (£15 billion). The current level of net investment by self-administered pension funds for 2012 (£38 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 fourth quarter of 2012, their 20th successive quarter of investment (Figure 10). The level of net investment by unit trusts and property unit trusts for Q4 2012, at £18 billion, is the highest recorded estimate since quarterly records began in 1987. The provisional full year estimate for 2012 is also the highest single year estimate of net investment (£54 billion) since records began 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 record net investment estimate reported by unit trusts and property unit trusts are statistics released by the Investment Management Association in their annual 2012 press release on 31 January 2013. They 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
    Total  Long-term insurance companies General insurance companies Self-administered pension funds Investment trusts Unit trusts & property unit trusts Consolidation adjustment1
                 
2007   83.5 39.5 5.0 13.3 -2.8 32.8 -4.2
2008   26.0 17.0 9.4 -20.4 0.3 17.7 2.0
2009   90.0 5.9 4.9 32.9 -0.6 46.8 0.1
2010   67.5 15.6 -3.2 19.7 0.5 44.0 -9.1
2011   24.3 -4.2 2.3 8.6 0.4 30.3 -13.0
2012   76.4 -6.6 5.0 37.7 -0.2 54.5 -13.8
                 
2007 Q1 15.4 10.4 -1.7 -1.4 -1.0 9.7 -0.7
  Q2 21.1 7.3 -0.1 5.9 -0.2 12.8 -4.6
  Q3 42.6 15.8 1.5 9.0 -0.4 11.1 5.5
  Q4 4.4 5.8 5.3 -0.2 -1.2 -0.9 -4.5
                 
2008 Q1 10.6 9.9 0.8 -3.9 0.6 6.5 -3.2
  Q2 12.2 6.8 3.3 0.9 -0.7 3.5 -1.8
  Q3 22.7 11.4 4.5 0.1 0.8 5.1 0.7
  Q4 -19.5 -11.1 0.7 -17.6 -0.4 2.6 6.3
                 
2009 Q1 8.0 0.8 1.4 2.6 -0.3 7.9 -4.4
  Q2 36.9 12.2 1.6 13.8 -0.2 11.0 -1.5
  Q3 20.5 1.2 -0.8 8.0 0.1 15.6 -3.6
  Q4 24.6 -8.4 2.7 8.6 -0.2 12.3 9.7
                 
2010 Q1 6.6 1.1 -6.5 -0.1 -0.7 7.9 4.9
  Q2 5.6 2.7 0.4 -6.3 0.7 15.2 -7.0
  Q3 27.2 7.4 0.8 15.1 0.0 7.4 -3.4
  Q4 28.1 4.5 2.0 11.0 0.5 13.6 -3.6
                 
2011 Q1 11.0 -5.6 -1.4 11.1 0.6 5.5 0.7
  Q2 10.1 5.1 1.4 -2.9 0.3 9.6 -3.4
  Q3 2.5 1.3 1.4 -1.6 -0.1 9.6 -8.1
  Q4 0.7 -4.9 0.9 2.1 -0.5 5.5 -2.3
                 
2012 Q1 23.1 -0.4 2.3 13.0 0.2 11.2 -3.2
  Q2 9.1 0.5 0.6 -1.0 0.0 9.1 -0.1
  Q3 24.6 -3.2 1.8 15.4 -0.5 16.0 -4.8
  Q4 19.6 -3.5 0.3 10.3 0.1 18.2 -5.7

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 by this statistical bulletin. 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 trusts.
  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.

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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 £32 billion in the fourth quarter of 2012 (Figure 11), were at a similar level to all quarters of the past three years, but were slightly above the five year quarterly average of £29 billion.

Back in 2006 and 2007 the value of premiums exceeded the value of claims. This trend has been reversed since and has continued into 2012. In each of the years 2008 to 2010, the value of claims was around 23% greater than the value of premiums. In 2011, claims amounted to £139 billion against premiums of £106 billion (a 31% difference). At Q4 2012, claims (£36 billion) were 14% greater than the value of premiums (£32 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 (£9 billion) were 39% greater than the value of claims (£6 billion) at Q4 2012 (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 fourth quarter of 2012 (£12 billion) were on a par with contributions for the fourth quarters of 2011 and 2010 (both £12 billion respectively).

The highest level of contributions to self-administered pension funds since these data were first collected in 1992 still stands for Q1 2012. The revised estimate for Q1 2012 of £17 billion is a record and 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, leading to a tendency for the figures for the first and fourth quarters to be higher than those for the other quarters of the year (Figure 13). A possible explanation for this trend is that companies, while compiling their end-of-year accounts, are better placed to determine how much they are able to reduce the gap between the assets and liabilities of their pension funds.

Provisional estimates indicate that this trend has continued in 2012 with the first (£17 billion) and fourth (£12 billion) quarters being higher than the second and third (both £11 billion), but not as marked as in previous years.

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   114.6 142.6 37.8 24.3 49.6 51.4
               
2007 Q1 41.3 40.2 7.8 6.2 10.7 9.4
  Q2 45.0 39.4 10.0 5.8 9.2 9.7
  Q3 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
               
2008 Q1 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
               
2009 Q1 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
               
2010 Q1 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
               
2011 Q1 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
               
2012 Q1 27.3 34.1 9.6 6.3 16.6 12.5
  Q2 28.6 36.4 10.0 5.8 10.5 13.0
  Q3 26.7 35.6 9.4 5.7 10.5 12.6
  Q4 32.0 36.5 8.9 6.4 12.0 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.

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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 Services Authority under the terms of the Financial Services Act 1986. 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 Act 1986. 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: Uses 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): Uses 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 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.

    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.

    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
    The first, second and third quarters of 2012 have been revised, partly as a result of late questionnaires being received and partly as a result of disaggregate data revisions. In the first quarter of 2012, net investment has been revised from £24.6 billion to £23.1 billion, and in the third quarter from £19.9 billion to £24.6 billion. The second quarter of 2012 has remained at £9.1 billion.

    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 starts with the first estimate published for Q1 2005 (in June 2005) and compares this with the estimate for the same quarter published three years later (in June 2008). The difference between these two estimates is calculated and this process is repeated for five years of data (all quarters up to Q4 2009). 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 19.6 1.2 5.3
           

    Table source: Office for National Statistics

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    A spreadsheet is available giving a revisions triangle (145 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

    Q4 2012   %
         
    Transactions    
         Long-term insurance companies 93
         General insurance companies 89
         Self-administered pension funds 87
         Unit trusts   95
         Investment trusts 96
         Property unit trusts 85
         
    Income and expenditure  
         Long-term insurance companies 94
         General insurance companies 92
         Self-administered pension funds 87
         
         
    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 (1.7 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.

  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.

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

  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.

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  13. ONS business statistics

    To find out about other official business statistics, and choose the right data for your needs, please use our interactive guide. This will help you to find relevant statistics published by the ONS. The guide allows you to choose the industry, feature of the economy and geography you are interested in, and returns a list of the available ONS indicators, together with guidance on their use, and links to releases.

  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 new 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 recently 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

Name Phone Department Email
David Matthews +44 (0)1633 456756 Business Outputs and Developments Division Financial.Inquiries@ons.gsi.gov.uk
Get all the tables for this publication in the data section of this publication .
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