A new report explains what Pensions UK believes is needed to enable pension schemes to invest more in UK growth assets and drive good outcomes for savers. The association calls for improved pipeline visibility, risk-sharing and value-focused regulation to overcome practical barriers.

Investment in UK ‘productive’ assets that are beneficial for savers “can only happen if the system can deliver more pension-grade opportunities, with clear routes to market and appropriate risk-return prospects”, Pensions UK said.

More practical, co-ordinated action by government and agencies is needed to support schemes to scale investments, said Zoe Alexander, executive director of policy and advocacy at Pensions UK. 

“Schemes need a diverse range of investible routes that are consistent with fiduciary duty and deliver good outcomes for savers,” she said. 

Pensions UK said its members show high interest in UK productive assets if suitable vehicles with the right risk and return profiles are made available and the right incentives are in place, but they do not feel that they are receiving the support to do so. Just 27% believe government is facilitating the pipeline “a lot” or “a moderate amount”, while most (86%) expect pressure to invest in the UK to increase.

Schemes also cite risk-adjusted returns being too low (41%), a lack of suitable investible opportunities (41%), policy uncertainty (33%) and liquidity constraints as barriers. In addition, most have “limited internal private markets capability”, according to the lobby group.

The report looks at the British Business Bank, the National Wealth Fund, Homes England and Great British Energy and shares case studies from the private sector, saying the system remains fragmented.

It finds that public finance institutions are “at different stages of readiness”. The British Business Bank has made the greatest progress in supporting scheme investment, including through the British Growth Partnership, Pensions UK said. The BBB recently announced a £40m cornerstone commitment to a new UK venture capital fund by Lansdowne Partners.

“While other institutions show willingness, there is more work to do, and Pensions UK stands ready to support this,” the association added.

The Mansion House Accord, signed by 17 large defined contribution schemes, sets an ambition to invest 10% in productive finance, with 5% in the UK, on condition that suitable opportunities are available. The percentage targets have since been written into law with a threat they could be made mandatory – but without the qualifying element that the right opportunities must be available. 

One of the signatories to the Accord is the People’s Pension, which holds 18% of assets in the UK. The scheme plans to have committed about £4bn to infrastructure and property by 2030. 

Chief executive Patrick Heath-Lay said: “The work we have done over the past year in preparing to invest in private markets means we are aware of the opportunities, many of which have the potential to offer attractive returns to our hard-working members.”

Heath-Lay agreed with Pensions UK’s finding that there is fragmentation, adding: “We believe there is a clear opportunity to harness the power of existing public finance vehicles further and align with industry to resolve some of the current barriers.”

In March, pensions minister Torsten Bell ‘pitched’ the government’s infrastructure pipeline to UK investors, but People's deputy chief investment officer Phil Butler at the time expressed concern about international competition, increasing the need for depth in the pipeline.

Pensions UK’s report was also welcomed by Lorna Blyth, managing director of investment proposition at Accord signatory Aegon UK, which is set to be bought by Standard Life.

“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,” said Blyth.

“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,” she added.