We welcome the government’s focus on Pensions Investment in phase one of their Pensions Review.
Pools of pension capital in the UK are substantial, with £430bn in Local Government Pension Scheme (LGPS) assets and UK Defined Contribution (DC) pension scheme assets set to grow from around £500bn (2021) to around £1trn by 2030.
These capital pools have the potential to play a part in addressing investment shortfalls in the UK and boosting economic growth and productivity. We believe that reforms can be made to make it easier and more attractive for UK pensions to invest more capital in UK assets. To make progress on the pensions investment agenda, the government will need to carefully balance objectives for individual savers, business and the UK economy, taking care to consider the complexities of the pension system, and promote behaviours that deliver win/win outcomes for all.
We do not support mandating investment in UK assets. This would contravene fiduciary duty, undermine trust in pensions, and could negatively impact the UK’s reputation and attractiveness as an open international financial centre with strong governance.
We welcome the government’s focus on consolidation of, and investment by, DC and LGPS schemes in the first phase of their review. We recommend an overarching focus on:
- Better outcomes for pension savers: By 2066 UK residents aged 65 years and over are expected to make up 26% of the total population. One of the key benefits of these reforms should be to give people across the UK a better life in retirement and help - in part - with solving the major public policy challenges that an ageing population brings.
- Encouraging a positive investment culture: There is a need for policies that build on the success of workplace auto-enrolment, empowering UK savers to confidently engage with and invest in their pensions. This approach aims to optimize retirement outcomes and support sustainable growth across the UK economy.
- Making UK investment attractive, easy and consistent with fiduciary duty: We advocate for revitalising UK capital markets to better serve savers, companies, and infrastructure investment. Policies should focus on making the UK and its assets more attractive to all investors.
- Focusing on long-term value: We recommend a shift from minimising costs to maximising long-term net value in pension outcomes. This requires a balanced approach to risk and a long-term perspective on investment returns.
- Identifying key behaviours wanted: Actors across the pension system need to contribute to good outcomes, finding effective ways to motivate, enable and support those behaviours.
- Drawing on international best practices: We encourage the government to consider successful pension reforms from other countries that could be adapted to positively impact the UK.
