Government launches pensions investment review

The government launched a pensions investment review in August 2024, led by the Minister for Pensions Emma Reynolds¹. The review is seeking to boost investment, increase saver returns and tackle waste in the pensions system¹.

In a call for evidence published in September 2024, the government asked for views on consolidation, value for money, and investment in the UK¹. An interim report was published on 14 November 2024, and full recommendations will be published in 2025¹. The interim report also set out proposals for the Local Government Pension Scheme on pooling assets and strengthening governance for consultation¹. Following the interim report, the government sought further views on proposals to increase scale and consolidation and looked at how pension fund investments could support UK economic growth¹.

The review covers how pension schemes invest. Schemes hold bonds issued by corporations and governments, equities, property, infrastructure and other alternative investments¹. Defined contribution (DC) schemes do not provide a guaranteed pension and instead provide a pot of money people can use in retirement, and the value of that pot can increase or decrease depending on factors including investment returns and contributions made¹. The Pensions Policy Institute estimated that pension schemes invest 6% of their assets in a narrow definition of UK productive assets, including only private equity and alternative investments; on a broader definition including publicly listed equities, corporate bonds, private equity and alternative investments, the share was 18%¹. The pattern of asset allocation varies significantly by type of scheme¹.

The government has said it wants "to overcome the barriers to increasing pension fund investment in UK productive assets to support our capital markets, which in turn will drive growth in our economy and improve the retirement outcomes for future pensioners"¹.

Industry bodies have raised points about the approach. The Pensions and Lifetime Savings Association says that, while these measures are important, they are not a "silver bullet" for driving investment into UK productive finance, and would need to be part of a "much broader strategy" including suitable investment opportunities, fiscal incentives and policy certainty¹. The Association of British Insurers identifies a risk of policy on value, scale and consolidation unintentionally conflicting with the government's policy of increasing investment in UK assets; it notes that if recent underperformance of UK equities continued it could reflect poorly in the value metrics of those invested in them, and that scale and consolidation would not necessarily increase weighting towards the UK, as bigger schemes can access a wider pool of assets globally¹. For organisations representing pension trustees, a core principle is that they should continue to be free to make decisions in line with their fiduciary duties to act in the best interests of scheme beneficiaries¹.

Proposals for a value for money framework are intended to encourage a greater focus on investment returns and service standards, in addition to costs and charges¹.

Why it matters for households

The review concerns the money held in workplace and other pension schemes on behalf of savers, and the government's stated aims include increasing saver returns and tackling waste in the system¹. For people in defined contribution schemes, the value of the pot is not guaranteed and can rise or fall with investment returns, contributions, costs and charges, and decisions taken when savings are drawn¹. How schemes allocate assets between UK and overseas holdings, and between different asset types, therefore feeds into the returns those pots may deliver¹. The proposals on pooling and governance in the Local Government Pension Scheme concern a defined benefit scheme that provides a guaranteed income in retirement based on salary and length of service¹. The review's scope is the investment behaviour of pension schemes; it does not set out changes to State Pension entitlement or to individual scheme rules in the material published so far¹.

What happens next

An interim report was published on 14 November 2024¹. Full recommendations will be published in 2025¹. Following the interim report, the government sought further views on proposals to increase scale and consolidation and on how pension fund investments could support UK economic growth¹. The interim report also set out proposals for the Local Government Pension Scheme on pooling assets and strengthening governance for consultation¹.