UK Govt says big pensions will invest in unlisted firms

The UK government said nine of the UK’s largest defined contribution pension providers have agreed to allocate 5% of assets in their default funds to unlisted equities by 2030.

UK finance minister Jeremy Hunt launched his “Mansion House Reforms” on Monday night.

The UK government said these pension providers represent over £400 billion in assets and the majority of the UK’s defined contribution workplace pensions market.

It said the pension firms involved include Scottish Widows, Aegon, Phoenix, M&G, Mercer, Aviva, L&G, Nest and Smart Pension.

“This could unlock up to £50 billion of investment in high growth companies by 2030 if all UK defined contribution pension schemes follow suit …” said the government.

“The reforms will also unlock up to £75 billion of additional investment from defined contribution and local government pensions, supporting the Prime Minister’s priority of growing the economy, and delivering tangible benefits to pensions savers.

“The United Kingdom has the largest pension market in Europe, worth over £2.5 trillion.

“Over the past ten years Automatic Enrolment has helped an extra ten million people save for their futures, with £115 billion saved in 2021, but how this money is invested is limiting returns for savers.

“Comparable Australian schemes invest ten times more in private markets than UK schemes, reaping the rewards that UK savers are missing out on.”

Phoenix Group Chief Investment Officer Mike Eakins said: “We are proud to sign the Compact, which is an important step to allow UK long-term savers to invest in a more diversified portfolio, giving them access to the potential returns of a broader range of assets, in line with their international counterparts.

“Currently, only 9% of UK pension funds are invested in alternative assets as compared to 23% in other major pensions markets.

“With the right regulatory environment, Phoenix Group could invest up to £40 billion in sustainable and/or productive assets to support economic growth, levelling up and the climate change agenda whilst also keeping policyholder protection at its core.”

Argon UK Chief Investment Officer Tim Orton said: “Aegon UK is proud to be a founder signatory of the Mansion House Compact which will help deliver better long-term outcomes for our customers. We are committed to ensuring our customers can access and share in the growth and success of innovative companies we invest in.

“We will use our scale and expertise to develop investment solutions seeking to improve the retirement outcomes of the millions of members of the defined contribution pension schemes we support.  The Compact will also create opportunities that help deliver our climate targets as we progress towards net zero.”

Scottish Widows CEO Chirantan Barua said: “The industry needs to modernise the investment options available to customers.  With the right consumer protections in place, the proposals announced today could make a huge difference to our customers and the wider UK economy. I’m proud that Scottish Widows is a founding signatory of the Mansion House Compact.”

Legal & General CEO Nigel Wilson said: “As the UK’s largest manager of money for pension clients, L&G is pleased to support the ambition set by the Compact.

“Increasing investment in science, technology and infrastructure will support better returns for the tens of millions saving for their retirement, as well as stimulate much needed long-term growth for the UK economy.”

Phil Parkinson, Investments and Retirement Leader, Mercer said: “Mercer supports proposals that lead to improved pension scheme member outcomes. As a global investment solutions provider, we see first-hand the value that illiquid asset allocations can bring to investors’ portfolios from a risk and a return perspective and are in favour of initiatives designed to unlock this asset class for DC members.”

M&G chair Edward Braham said: “Patient capital put to work in companies or projects over multiple decades is essential to support economic growth and importantly, capture value for people’s pensions as they save for their retirement.

“M&G’s heritage is in investing in private markets, whether it is through infrastructure, real estate or innovative companies with purpose. We are democratising access to private markets through the Prudential With Profits Fund, and are supportive of DC pension reforms that encourage more investment of this kind that has potential to result in positive outcomes for savers.”