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The UK’s pensions minister is pushing retirement funds to invest more in private markets as part of wider plans to improve performance and consolidate £1.3tn of UK pension assets.
Torsten Bell told the Financial Times that he was in “very active discussions” with managers of defined contribution schemes, which cover most workers, about increasing their voluntary commitment to private assets.
Bell, who was appointed in January, said in an interview that the government was “encouraging investing in a wider range of assets, not instigating”.
The final report of the pensions investment review — which was launched by chancellor Rachel Reeves in July after Labour won power and is due later this spring — would provide “end point clarity” on how ministerial reforms would boost investment in productive assets, he added.
The UK’s pension industry has historically been reluctant to substantially increase its allocations to private markets. A study by New Financial, a think-tank, last year found that the UK’s DC pension funds invested 2 per cent of total assets in private equity and 2 per cent in infrastructure.
In Australia, a market that the UK has followed closely in order to shape policy, DC pension funds invested 6 per cent of total assets in private equity and 8 per cent in infrastructure.
In 2023, 11 pension funds signed the then Conservative government’s Mansion House compact, in which they pledged to invest at least 5 per cent of their default fund’s assets in private markets by 2030.
But Bell signalled this target could become more ambitious in an update to the compact to be published this summer.
“Every percentage point matters when this investment can deliver not only returns for savers but also contribute to economic growth,” he said, adding that the government was not looking to push pension funds to invest in UK private markets specifically.
However, some pension industry figures are sceptical that more investment in private markets will lead to higher returns, and have pointed to the relative lack of transparency in private markets over public ones.
Forecasts released last autumn by the Government Actuary’s Department, which provides financial risk assessments for the public sector, estimated that the push to get UK pension funds to invest more in private markets would boost returns by just 2 per cent over a 30-year period.
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Asked if the pension industry was doing enough to support investment in the defence sector, which has come under renewed scrutiny after a push by European countries to pay for higher military spending, Bell said that “in the vast majority of cases” funds were investing in the asset class.
“Pension funds will already want to include a wide range of assets and that will include defence,” he added, although he declined to say if he would back commitments to the sector being included in an update to the Mansion House compact.
The City of London Corporation, the local government of the Square Mile, confirmed to the FT last week that expanding the number of signatories and disclosure of investments in defence were both being explored as part of the update to the compact.
In a speech to the Pensions and Lifetime Savings Association in Edinburgh on Tuesday, Bell also confirmed that he would hold England and Wales’s £392bn public pension scheme to a deadline of March 2026 to pool all of its assets into vehicles regulated by the Financial Conduct Authority.
This is despite calls from managers of the Local Government Pension Scheme and other pension industry figures for the government to allow more time, after the proposals were set out in November.
At present eight “pools” manage money on behalf of 86 local authority pension funds. The pools are responsible for the retirement savings of 6.7mn people who work or worked mainly in the public sector.
Three of the pools — ACCESS in southern and eastern England, Northern LGPS and Wales Pension Partnership — are set up as joint committees of the underlying funds and will have to hire management teams and boards and be granted FCA approval to be able to continue to operate.
Bell said he was “confident” that they would have enough time to do so.
