The Pensions Regulator (TPR) has published new guidance to help UK pension scheme trustees consider better outcomes for savers by investing in private market assets.

The regulator said that with the right advice and effective governance, private market assets can play a valuable part in a diversified portfolio that aims to improve and protect saver benefits.

The guidance follows on from the government’s Mansion House reforms, which are designed to enable the financial services sector to unlock capital for UK industries and increase returns for savers while supporting growth across the wider economy.

As part of the guidance, the regulator said it expected trustees to act in the best interest of savers and that means properly considering the full range of investment options.

The guidance calls on trustees to ensure they have an appropriate level of knowledge and understanding to be able to work with their advisers to fully consider how accessing private market assets may meet their needs. This includes setting objectives for their investment advisers relating to private market investment advice and improving outcomes for members.

TPR said that those who do not have the skills or resources to explore a more diversified portfolio should consider changing their governance model or consolidating.

Minister for pensions Paul Maynard said: “I welcome TPR’s guidance encouraging pension schemes to consider investing in private markets. Considering a full range of investment options can help diversify portfolios and improve outcomes for savers.”

Maynard said the guidance bolsters the Department for Work and Pensions (DWP) plans to improve retirement outcomes and drive economic growth in line with the Mansion House reforms.

Louise Davey, interim director of regulatory policy, analysis and advice at TPR, said that innovation in the investment management market and the launch of new fund structures, like the Long Term Asset Fund (LTAF), is providing more opportunities for defined contribution (DC) schemes to invest in private market assets.

She said: “Our focus is on driving up value for pension savers. For DC schemes, we want to see a shift in mindset from cost to value. Our guidance helps trustees consider how best to do this.”

Davey added that investing in a wider range of assets can help boost the value of DC pots.

She continued: “While private market investments generally carry higher costs, they can have a positive net impact on the value delivered. With appropriate advice, private market assets can play a key part in a diversified portfolio that aims to deliver better outcomes for savers.”

Davey added that as the defined benefit (DB) universe develops and new models evolve including, for example, consolidation or capital backed funding arrangements and run-off models to generate additional surplus, further opportunities for increased investment in private market investments are likely to arise.

“It’s not our job to tell trustees how to invest people’s pensions. But it is our job to make sure they focus squarely on delivering value from investments and have the right skills and expertise to consider all asset classes,” she continued.

Davey said that TPR supports innovation that benefits savers and trustees who don’t have the scale or governance to achieve these rewards and that they should “consider consolidating or changing their governance model”.

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