The UK government should prioritize reform of the UK’s £1.2tn defined benefit pensions system to unlock billions of pounds for investment, according to asset managers. In November the government announced plans for a series of “megafunds” across defined contribution (DC) and local government pension schemes to drive more investment in British infrastructure and fast-growing companies.
But it has yet to lay out plans for corporate defined benefit (DB) pension schemes, despite a consultation from the previous government earlier this year that explored options to allow companies to access scheme surpluses, which could encourage them to invest more in risky assets. “We think it’s important that DB schemes are looked at as a priority — they have the potential to get money into the ground more quickly than other areas,” said Jos Vermeulen, head of solution design at Insight Investment, which manages £665bn of assets in the UK. “There’s scope for up to £100bn to be released in the next 12 to 24 months . . . this is a once in a generational opportunity to change the fortunes of the UK . . . if you lose that opportunity it may be permanently gone,” he added. Owen McCrossan, head of investments for abrdn group pension schemes, said DB pension schemes were “certainly a pool of capital that could help fill the gap in productive finance”. A 5 per cent allocation to productive assets such as real estate and infrastructure “could raise around £50bn”, he added. That is the same amount the government hopes to drive into productive assets by 2030 under its plans to consolidate defined contribution workplace schemes to funds of at least £25bn of assets. Calls for the government to reform rules around DB schemes come as it has delayed a review into pension adequacy. The review had been expected to lay out plans to increase auto-enrolment pension savings rates, which the government had hoped would drive more investment in the U