Pensions UK has called upon the Government, regulators, public finance institutions and the pensions industry to create clearer end-to-end pathways to enable pension schemes to invest more in UK growth assets.
In a new report ‘From commitment to deployment: scaling pension fund investment in the UK economy’, the trade body explores how pension capital can be mobilised at scale through investable structures, better coordination across public bodies and a regulatory environment that supports long-term value.
Following the introduction of the Mansion House Accord, a number of the UK’s largest DC pension schemes have formally committed to increasing their allocation to UK private markets.
While there are already strong levels of domestic investment by UK pension schemes, with the Pensions Policy Institute estimating that 19% of UK pension assets are invested in UK productive assets, Pensions UK said structural challenges can prevent UK pension schemes from increasing their allocations to UK assets.
Only a quarter (27%) of Pensions UK members believe the Government is facilitating the pipeline ‘a lot’ or ‘a moderate amount’ yet 86% expect pressure to invest in the UK to increase.
Additional barriers include insufficient risk-adjusted returns (41%), a lack of suitable investable opportunities (41%) and policy uncertainty (33%).
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “Pension schemes are already major investors in the UK, supporting economic growth but more practical, co-ordinated action by government and agencies is needed to support their efforts to keep scaling those investments. Schemes need a diverse range of investable routes that are consistent with fiduciary duty, and deliver good outcomes for savers.
“A year on from the delivery of the Mansion House Accord, this report sets out the practical steps needed so that public finance institutions, regulators and industry can work together to connect long-term pension capital with a clearer, more investable pipeline of UK opportunities.”
Call to action
Pensions UK has set out a number of actions for government, regulators, public finance institutions, trustees and providers, employee benefit consultancies and employers.
These include the Government moving from announcements to investable routes and cross-government clarity on how pension schemes will be supported.
It has called for improved coordination between different departments to ensure consistent messaging and aligned policy objectives relating to pension investment and UK growth. This includes setting out a clear, joined-up explanation of how existing government reforms, initiatives and institutions are intended to support pension investment in UK growth at a practical level.
Pensions UK also believes regulators have a responsibility to emphasise ‘value over cost’ and ensure that regulatory frameworks and supervisory approaches support schemes to invest in a broader range of assets where this is in members’ interests.
According to the trade body, regulators should continue to embed and operationalise the Value for Money framework to support a cultural shift from cost minimisation to long-term net outcomes and review how regulatory expectations may unintentionally discourage long-term productive investment.
Additionally, Pensions UK has urged public finance institutions to shift from policy bank to pension-investable platforms, and trustees and pension funds to actively assess the role of UK investment in delivering long-term member outcomes, as well as improve communication with members on fees, value and net long-term returns, particularly where higher-cost assets may deliver better outcomes.
Lorna Blyth, managing director – investment proposition at Aegon UK, said: “As a founding signatory to the Mansion House Accord, we have already deployed one-third of our DC workplace private market assets in the UK, driven solely by our fiduciary duty to secure better risk-adjusted returns for members rather than by mandation.
“Ensuring clearer regulation and access to scalable pension-grade opportunities is vital. At the same time, we believe providers must retain discretion to balance risk, return and liquidity and to set allocations voluntarily in their members’ best interests.
“We urge the Government and industry to adopt pragmatic timelines and to deliver a steady pipeline of high-quality UK private market investment opportunities that are appropriate for the scale of pension assets. This is vital to optimise member outcomes and ensure long-term UK economic growth.”
Jamie Jenkins, director of policy at Royal London, commented: “It is widely accepted that greater economic growth will lead to greater prosperity for all, and that pension investments can play an important part in helping grow the UK economy.
“Whether investing in social infrastructure, sustainable technologies or simply supporting innovative companies to thrive, there is an opportunity to improve our society while at the same time generating good returns for people saving for their retirement. There is inherent value for all concerned.”
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