UK data on pension assets is “slippery, fragmented, inconsistent and incomplete”, the Pensions Policy Institute has said and is calling on government and industry to create definitions and reporting standards as new disclosure requirements are set to be introduced.  

The PPI estimates UK pension assets to be at about £3tn including annuities at the end of last year, of which it thinks productive assets make up about 18%, or £541bn if listed equities, corporate bonds, private equity and alternatives are included. If only private equity and alternative are considered productive assets, this drops to 6%, it said in its latest report published on Monday.  

Expectations from government regarding pension scheme investment have become more focussed over recent years, said Daniela Silcock, head of policy research at the PPI, and initiatives like the new value for money framework will require schemes to disclose more details about their asset allocation, while the government is also trying to find ways to get pension funds to invest in UK assets, especially productive assets.  

However, asset definitions differ across organisations collecting data and between scheme types, and some definitions overlap, leading to a confusing picture – trying to get a clear view is like “trying to nail 20 jellies to a wall”, according to the institute. Silcock said now would be the time to improve data. 

“This is an essential time for government, regulators and industry to work together to ensure consistent definitions and reporting standards. If this work does not take place soon, it will be difficult for schemes to comply with regulation and expectations,” she said.  

“If industry and policymakers are not able to accurately track asset allocation, then not only will regulatory compliance be hindered, but it will continue to be very difficult to conduct cross-industry analysis, monitor changes over time, and help schemes to learn from each other's experiences,” she added.  

Mike Eakins, chief investment officer at Phoenix Group, which sponsored the independent research, said: “We want to invest more into the UK on behalf of our policyholders to get the best returns for them but also benefit UK society. Now is the time for the key players to get round the table and work out how best we can invest our capital and how we can do so at pace and in key areas such as housing, infrastructure, energy and education.”  

Phoenix has signed up to the former government’s Mansion House compact, agreeing to invest 5% of the money in DC default funds into private equity by 2030. In July this year, Phoenix set up Future Growth Capital with Schroders to support the Mansion House compact, with the aim of getting UK pension funds investing into private assets both in the UK and overseas. Phoenix has committed £1bn, aiming to commit £2.5bn over three years.  

The chair of Phoenix, Sir Nicholas Lyons, was the lord mayor of London for the 2022-23 term and in early 2023 stirred controversy when he reportedly suggested DC pension funds should be forced to allocate 5% each to private equity via a proposed Future Growth Fund.  

DC schemes currently invest £101bn, or 19% in productive assets, the PPI found. While DC is the fastest growing type of scheme, it noted that private sector DB pensions are the biggest investors in UK productive assets by value, amounting to £250bn Public sector DB schemes hold the largest proportion of productive assets in relation to their size, at 31%. Annuity providers are major investors in UK corporate bonds at £90bn.  

More private equity investment is likely in the medium term as desired by the government, the PPI believes, with the growth in private market assets largely driven by the very small number of open DB schemes in the public and private sectors and by DC funds.  

“However, the policy initiatives currently underway could lead to some unintended consequences,” it warns.  

These include a herding effect, which pushes up asset prices and depresses returns; a risk that disclosure of asset allocation could lead to schemes tending towards the mean; a risk that more schemes move away from UK assets if those with exposure are seen to be performing poorly; a potential backlash from trustees or even regulators if the government seeks to interfere with fiduciary duty; a possibility that automatic consolidation of small pots will require DC schemes to hold more liquidity.  

How can the data on UK pension fund assets be made clearer?