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Share on LinkedInNew research published today (16th May) finds that large UK pension funds deliver significant economic benefits to the UK, providing vital “patient” capital to businesses, which is key for future economic growth.
Reflecting the UK Government’s ambitions, scale and consolidation are gaining momentum in the UK pensions system: 29.4 million people currently have retirement savings invested with a large UK asset-owning pension fund. The report, authored by WPI Economics, shares new analysis which finds that the largest UK pension funds:
- Have investments in infrastructure and housing that generate an estimated £71.3 billion in total economic gross value added (GVA) in the UK over a three-year period after the investment is made and around 320,000 jobs in that year.
- Have £37.4 billion invested in the UK corporate bond market, saving UK businesses £120 million in the cost of capital per annum.
- Allocate £1 in £4 to private markets versus £1 in £9 for the rest of the sector, with around half of this in UK assets.
Large UK pension funds have an estimated £280 billion invested in the UK economy across a range of assets. The scale and sophistication of these large pension funds enables them to pursue advanced investment strategies in UK private markets and to secure greater access to global opportunities, supporting diversification. This in turn supports the UK Government’s objective of sustainable long-term economic growth.
Today’s research, “The scale of it: the added value of independent and scaled UK pension funds for the economy, members, and society”, finds that key to achieving these benefits of scale is the investment freedoms UK pension funds have to efficiently allocate the assets under their management in line with their members’ best interests.
The Government’s focus on growth and productivity provides an opportunity to build the UK’s attractiveness to investors and pension funds’ ability to provide the returns members and employers need. The report finds that, while the UK needs to become more attractive to investment, mandation of how large pensions invest creates risks and will not address the wider barriers the Government has already identified, including fiscal incentives, planning system bureaucracy and the need for clear and consistent industrial strategies.
Joe Ahern, Director of Policy, WPI Economics said:
“The findings of today’s research show the positive impact already being made by large pension funds in the UK, including the benefits to their members, the economy and society.
“With these benefits in mind, it is important to be conscious of the potential unintended consequences that could flow from directing pension funds on how and where to invest. Investment freedoms are key to these funds playing a strong role in society and in the economy while getting the right outcomes for pension savers.”
Morten Nilsson, CEO, Brightwell added:
“UK based asset owners have a clear alignment of interest with domestic assets and already deliver a huge amount to the economy.
“Consolidation and creating scale is key, and is gathering pace in the industry. This will deliver far reaching benefits – but for these benefits to be fully realised, retaining independence to invest in the best way to meet the needs of members and savers, without intervention, is paramount.”
Rachel Elwell, CEO of Border to Coast Pensions Partnership, said:
“From patient capital to business, through investing in infrastructure to supporting the energy transition, the UK economy and wider society enjoys huge benefits from large pension funds using their scale and sophistication to invest for the long term.
“Harnessing these benefits and removing obstacles to investment will be critical in achieving our shared ambitions for UK growth.”
Matthew Graham, Chief Business Development Officer, Local Pensions Partnership Investments, said:
“At LPPI we work with our client funds to provide investment advice, with clients retaining sovereignty over the strategic asset allocation, which we then implement through a range of bespoke pooled funds. This approach allows us to create scale, and the benefits this provides, whilst also ensuring we provide investment solutions that deliver different risk and return levels reflecting individual client needs.”
Notes to editors:
The report was supported by Border to Coast, Brightwell, Brunel Pension Partnership, LPPI, Nest, Railpen and the Universities Superannuation Scheme (USS). These range from longstanding DB/hybrid funds with significant in-house investment expertise such as USS and Railpen, through to newer DC funds which are rapidly gaining significant scale, such as Nest. All have shared their data to support the creation of this report.