Introduction
With an estimated market size of approximately £4tr, the UK pension market is the largest in Europe and second largest in the world after the US. The market is evolving in a number of ways as multiple consultations and policy changes have been proposed across defined benefit (DB) and defined contribution (DC) schemes.
Overall, three broad themes can be identified:
- consolidation/scale;
- increasing investments in private assets; and
- increasing investments in the UK.
Pensions have been a priority on the political agenda with both the Conservative and Labour parties agreeing that pension assets should be better utilised to grow the UK's economy, a topic our public policy team explored in a recent article on privatecapitalsolutions.com.
Given this shared agenda, the new government will be able to build on the work already undertaken by the outgoing administration, such as previous consultations. Officials have long been focused on this area and have refined their policy advice both in light of the direction of travel set out by Jeremy Hunt – the previous Chancellor of the Exchequer – and the similar approach taken by Rachel Reeves, the new Chancellor, in opposition. The Pension Schemes Bill, announced during the King's Speech in July, further indicates that the change of government will not disrupt policy development in this area, as the measures proposed mostly echo those of the previous administration. That said, it appears that the new government is eager to move quickly having already published an interim report for its landmark Pension Investment Review and a series of consultations.
In this report we intend to take stock of the ongoing reforms and their impact on each sub-sector of UK occupational pensions and the opportunities and challenges they may pose for private capital.
Report update: Recent changes at a glance
The new government has wasted little time moving forward with reforms to the pensions market. This report was first published in October 2024 but has been updated for the recent activity in this space. This page provides a summary of the latest developments and how they affect private capital managers.
| Public DB schemes | |||
| Policy development | Summary | Latest activity | Opportunity and risks for private capital managers |
| Scale and consolidation via pooling of assets | The government is seeking to accelerate the pooling of LGPS assets to better capitalise on investment opportunities and deliver economies of scale. |
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| Investment in productive asset classes | The LGPSs already invest c30% of their assets in the UK. The government has stopped short of advocating targets for UK investments. It will however place more pressure on LGPS pools to unlock investment opportunities in "local" business and report annually on this. |
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| Surplus sharing | The government is considering options to improve access to DB pension fund surpluses. Releasing the surplus funds is hoped to encourage pension funds to defer the transfer to an insurance company and therefore reverse the immediate de-risk strategy and increase investment in growth productive assets. |
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| Scaling default arrangements | The government has sought views on proposals to introduce a minimum AUM requirement for default funds and limit the number of default arrangements that each provider can operate. This is designed to accelerate a shift towards larger pension funds. |
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| Investment in unlisted equities | Eleven Mansion House signatories have committed to invest 5% of their default funds in "unlisted equities" by 2030, although this is not mandatory. |
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| Unconnected multiple employer pension schemes | Collective DC schemes are designed to hold a greater range of higher risk assets by pooling a broader range of different ages and longevity risks through multiple unconnected employer trusts. |
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| Value for money | The government is developing a VFM Framework to shift the focus
from short-term costs to long-term value for savers and increase
transparency and competition in the market with pension funds
expected to publish public information on their investment
performance. This will involve greater disclosure on a variety of
metrics (e.g. investment performance, asset allocation inc UK /
non-UK split) which is designed to shift the emphasis from
cost. The government is also exploring whether employers place too much emphasis on the price charged by workplace pension providers compared to other metrics (e.g. investment performance). |
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