Why the FTSE 100 is breaking records — and why that's good for your pensions

Independent

29-07-2025

The FTSE 100 has surged to new record levels after investors piled back into the stock markets they deserted in April following Donald Trump's announcements of tariffs.
The new highs are seen as good news for investors but also for most people in the UK, whose pensions will likely be invested in companies in the stock market.
And the levels could continue to go higher in the wake of a trade agreement between the US and the EU.
Here, The Independent takes a look at what this could mean for future investments:
What is the FTSE 100?
The FTSE 100 is what is known as an index. This is simply a collection of the 100 biggest public companies (that you can buy shares in) which have their main company listing on the London Stock Exchange.
You may have heard of the S&P 500 which is similar – that's 500 of the biggest in the US, while the CAC 40 is France's top 40 companies and so on.
The FTSE 100 simply refers to those we might call British, although they don't have to have been founded in the UK.
When they collectively rise in share price, the FTSE 100 rises as an index; when they drop in share price, it goes lower.
Why is it at a record high and why does that matter?
As a collective, share prices have risen to a record high.
The FTSE 100 passed 8,000 points for first time in 2023 and 9,000 for the first time just last week. Across 2025 so far it has risen more than 11 per cent. If dividends are added, it's even higher.
As for why it's important, it's generally seen as an overall indicator of the UK's economic strength – at least as far as public companies within it go.
The reasons why those individual companies have grown is more nuanced and varied.
Recently, the UK market had been seen as undervalued relative to international peers, which makes the companies in it an attractive asset to buy.
Then there's the fact many of them make good dividend payments – paying out profits to shareholders – and that the UK was one of the first to agree a trade deal with the US. That removed some uncertainty from the businesses where others in Europe and further afield were still left in limbo, while domestic economic matters impact too.
For example, the political decision to spend more on national defence means companies within that sector benefit from big contracts – and the UK has several of those.
Which companies have seen their share price rise?
Taking the above example, Rolls Royce has seen its share price rise more than 70 per cent this year so far.
Investing platform interactive investor places the engine-making company at third among FTSE 100 firms for share price rises in the first half of 2025, behind fellow defence firm Babcock (129 per cent) and miner Fresnillo (132 per cent).
Elsewhere, miners and banks have done generally well, though it's not an across-the-board situation. Glencore, for example, is down more than 11 per cent since the start of 2025 and advertising firm WPP has seen its share price almost halved.
What does that mean for my pension and investments?
Depending on the type of pension you have, it's possible that a portion of it will be invested in the FTSE 100 itself, or other funds which contain companies that are in the index.
As such that means your pension value will have increased – or at least, the portion of it invested in those British companies will have.
A pension focused on strict ethical criteria wouldn't have all of them, for example – the oil giants or tobacco firms would be excluded there. But it could still be benefiting from other companies' share price growth.
Analysis by AJ Bell suggests the average defined benefit (DB) schemes may have around 1 per cent exposure to listed British assets, though that can vary significantly.
Defined contribution (DC) schemes could have up to 25 per cent invested in UK equities - though again, some may have much less.
The risk-averse nature of British people to not investing as much as Rachel Reeves is attempting to get them to seems to be partly responsible here too, says Laith Khalaf, AJ Bell's head of investment analysis, with fund managers reluctant to risk getting lower returns by altering allocations.
'While this year is a welcome turnaround in fortunes for UK stocks, it's unclear whether this will ignite a passion for domestic investment amongst pension schemes. Many follow a purely passive approach to the allocation of money, which normally means tracking the MSCI World Index, a widely used benchmark of global stocks,' Mr Khalaf explained.
'Only 3.6 per cent of this index sits in UK shares, and when you consider most pension schemes won't hold all their assets in shares, that only means a token investment in UK companies. Pension schemes can choose to allocate more money to the UK, but this requires an active decision to do so, and leaves the pension scheme managers on the hook if that leads to weaker performance compared to the global stock market.'
And for the rest of 2025?
Nothing is guaranteed, and as early April showed, the stock market can swing in either direction very quickly which will impact investments, including pensions.
But as we said at the time, if you notice your pension going down you shouldn't really be worried about it - unless of course you are extremely close to retirement, in which case a discussion with a financial advisor or your pension provider should be a priority to discuss more of a focus on value protection.
Likewise, now with many investments on the up, don't get too carried away thinking that's the 'minimum' you'll have in future.
But over the long term, historically the direction has always been up.
So while 2008, 2020 and many others show how markets can fall, consistently paying into investments along the way - as people do with auto-enrolment on a workplace pension for example - simply means that you'll get more bang for your buck at those moments, with many years ahead for (hopefully) the overall trend of rising to continue and benefit from.