Interim report of pensions investment review published

The government published the interim report of its pensions investment review on 14 November 2024, alongside two consultations on measures for the defined contribution (DC) market and the Local Government Pension Scheme (LGPS) in England and Wales¹. The review was launched in August 2024 and led by the Minister for Pensions Emma Reynolds, and is seeking to boost investment, increase saver returns and tackle waste in the pensions system¹. The Chancellor announced the interim report, which puts forward proposals to deliver a major consolidation of the UK pension system and seeks to unlock billions of pounds of new investment for the UK economy and boost returns for savers².

The interim report set out proposals for the LGPS on pooling assets and strengthening governance for consultation¹. The government also consulted on delivering a major consolidation of the DC market and the LGPS in England and Wales so pension funds have sufficient scale to facilitate investment in productive assets, on addressing what it called a culture of cost before value in the DC market, and on overhauling the way the LGPS invests to deliver large pools of professionally managed capital while embedding investment in local communities as a priority². 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.

The review is also examining how pension schemes invest. 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; using a broader definition that includes publicly listed equities, corporate bonds, private equity and alternative investments, the share was 18%¹. Pension schemes invest in different types of assets, including bonds issued by corporations and governments, equities, property, infrastructure and other alternative investments¹. DC schemes do not provide a guaranteed pension and instead provide a pot of money that can increase or decrease depending on factors including investment returns and contributions made, whereas the LGPS is a defined benefit scheme providing a guaranteed income in retirement based on salary and length of service¹.

Industry bodies have raised points about the proposals. 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, and says 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.

Why it matters for households

The proposals cover workplace DC schemes, where the value of a pot depends on contributions, investment returns, costs and charges, and the LGPS, which pays a guaranteed income based on salary and length of service¹. The LGPS has around 6.7 million members and assets of about £400 billion, and the government says the scheme is set to grow to £1 trillion by 2040³. Over £2 trillion of assets are managed by the workplace pensions system³. The interim report did not set out final rules, so no change to any individual's pension, contributions or retirement income took effect on 14 November 2024. The consultation documents sought views on consolidation, value for money and investment in the UK¹.

What happens next

Full recommendations were to be published in 2025¹. 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 government also published an analytical publication covering trends in UK pension fund asset allocations over time, evidence on the benefits of scale, and comparisons to selected countries².