Industry backs drive to boost UK investment through pension funds – but member outcomes must remain ‘front and centre’
Pensions & benefits DC investment consulting DC pensions Mansion house reforms
A poll taken during a webinar hosted by LCP and Frontier Economics on Monday (30th March) found that around 2 in 3 pensions and investment professionals support the Government’s ambition to boost UK investment through pension funds, but only provided that this is compatible with the best outcomes for members.
Around 1 in 6 respondents went further and said they were fully supportive, arguing that pension money should “work harder for the UK economy”, whilst around 1 in 6 were fully opposed, saying that the Government “should not be meddling.”
The poll formed part of a wider discussion on the role of UK pension schemes in the productive finance agenda, following the recent publication of LCP and Frontier Economics’ joint paper, ‘UK Pension Schemes and Productive Finance – a framework for effective intervention.’
The paper found that:
- As UK schemes grow, they are likely to diversify naturally, increasing allocations to the types of assets the Government wishes to promote, without requiring prescriptive intervention. Several larger UK schemes already have meaningful allocations to private markets and infrastructure, and more are expected to follow as they scale.
- International comparisons can be misleading. The fact that schemes in other countries allocate a set proportion to domestic ‘productive’ assets does not necessarily mean this is the right model for the UK. Instead, policy should focus on identifying genuine market failures – areas where socially optimal investment is not currently being delivered.
The authors argued that policy should support, rather than constrain, trustees’ decision making, ensuring schemes can continue to act in members’ best interests and participate in productive finance where it is appropriate and beneficial.
In my discussions with schemes, I see no shortage of willingness to invest more in the kinds of assets the Government is keen to promote. UK DC pension schemes have made significant progress. However, building meaningful allocations to UK productive assets will take time. There remains a shortage of investable opportunities that can support this growth, which offer the right risk, return and liquidity characteristics, particularly against the backdrop of a rapidly changing DC market.
Stephen Budge Partner at LCP
