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Pension funds hit as windfall tax wipes £600m off share prices

·3-min read
Falling - TMG
Falling - TMG

Pension funds and British investors have lost nearly £600m as share prices took a tumble in early trading with Rishi Sunak’s energy bill relief package to be announced later today.

Shares in giant energy companies Centrica, Drax and SSE fell more than 2pc during the first hours trading as investors "priced in" the damaging effects of a a new tax. Nearly £600m has been wiped out across the three stocks.

Large pension funds that manage the savings of millions of workers are big investors in the London-listed firms, either via direct stakes or using investment managers such as BlackRock, Schroders and Vanguard. Local government pension funds such as those from West Yorkshire and the West Midlands have direct stakes in Centrica, according to ratings firm S&P.

The Chancellor is expected to announce a new support package to combat the rising cost of energy bills, delivering extra money for all households. A further £200 will be taken off energy bills taking the total rebate to £400 while plans to make people pay this back over five years will be scrapped.

Instead, the multi-billion pound programme will be partially funded by windfall tax on energy firms – with the levy likely reduced depending how much companies invest in renewable energy generation.

Shares in London-listed SSE fell a further 2.8pc, losing £400m off its market cap, just one day after its chief executive defended the energy company's 23pc rise in annual profits. Shares in global energy firms Shell and BP both rose in the first hour after markets opened on Thursday morning, however this was down to Brent Crude prices increasing.

Victoria Scholar, of stockbroker Interactive Investor, said a tax on Shell and BP had been considered for a while and was likely to have factored into the share price. However, companies beyond the oil giants had also become affected by investor worry after it became clear earlier this week that any tax would include them as well, she said.

"SSE fell sharply when we found out other utilities would face a windfall tax. They are losing ground today as the Chancellor prepares to unveil his emergency aid package, with the levy very much on the cards hitting a range of energy companies," she added.

Rob Burgeman of Brewin Dolphin, a wealth manager, said investors would experience short-term knocks to the value of their savings but that share prices should stabilise over time.

However, he added: "These are companies that people own for the dividends, which they live off. A windfall tax could have severe consequences in future."

Pension pots could be damaged by such a tax, the education secretary Nadhim Zahawi warned earlier this week. A one-off levy on energy companies would likely result in dividends being slashed or axed altogether, he added.

More than half of savers fear a windfall tax would have a negative impact on their pension, a survey by Interactive Investor found. The Chancellor will announce the new package to MPs later today.

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