The Pensions Regulator (TPR) has found that, while pension funds want to invest in UK growth, they face practical barriers. It has pledged to support industry initiatives that help remove barriers and improve access to suitable investment opportunities.
The regulator’s report, published today, shows that pension funds are interested in investing in private market assets where it is in their members’ interest. Large schemes, in particular, are generally better placed to do so, thanks to their scale, governance capability and better access to specialist investment expertise.
Most have already invested or intend to invest, although material allocations remain less common. Appetite is more limited among defined benefit (DB) schemes, many of which are well funded and see little need for further growth assets.
Assets in occupational DC schemes are expected to grow from £249bn to around £1trn by 2036, and some master trusts have set targets of at least 10% in private markets by 2030, with at least 5% in UK assets. TPR expects that, as more pension funds gain scale and capability, they will be able to access a wider range of private market investment opportunities.
A separate research study from Standard Life and WPI Economics found that DC pension schemes could invest between £40bn and £200bn in UK private markets by 2035 as consolidation creates larger schemes with greater capacity to diversify.
The regulator also highlighted that new investment vehicles, including long-term asset funds (LTAFs), are creating practical routes into private market investment for some schemes.
However, engagement with more than 40 stakeholders across pensions and investment industries showed that barriers persist. These prevent schemes from investing capital at the pace and scale they could while continuing to deliver good outcomes for members.
The barriers include policy and regulatory uncertainty, capability and knowledge gaps, opaque fee structures, limited transparency, restrictive market structures and limited availability of suitable investable opportunities.
The TPR report highlights the role that government, regulators and industry can play in improving the conditions for schemes to consider a broader range of investment opportunities where these are in members’ interests, from shaping supportive policy to strengthening capability and governance across the sector.
TPR said it is continuing to work with these partners to address the barriers identified, reflecting the progress it is making against its commitments of supporting growth through pensions reform and long-term investment.
To ensure growth remains a priority for schemes, it will also use its regulatory approach to challenge trustees on their investment strategy and governance capabilities through supervisory engagement, while continuing to back industry initiatives to remove these barriers.
TPR’s executive director of market oversight, Ben Gunnee, said: “Pension schemes want to invest in private markets, but many schemes are currently experiencing practical barriers that limit their opportunity for investment.
“Our research can help government and industry understand what’s getting in the way and where action could unlock investment that benefits members and the wider economy.”
Minister for pensions Torsten Bell added: “Pensions are a huge source of potential investment in this country, and we want schemes to be able to back UK growth as well as deliver good outcomes for their members.
“This research moves us closer to understanding the barriers holding schemes back, helping us work with industry to unlock investment that supports a stronger economy and better retirements for savers.”
