Investors Urge UK Government to Reform Pension Payments - FT

According to a report, asset managers have urged the UK government to prioritize a £1.2 million defined benefit pension scheme reform to unlock billions of pounds in investment.

In November, the government announced a series of "mega fund" plans for defined contribution (DC) and local government pension schemes to facilitate greater investments in UK infrastructure and fast-growing companies. However, despite earlier consultations by the previous government exploring options for allowing companies access to their plan surpluses and encouraging them to invest more in riskier assets, plans for corporate defined benefit (DB) pension schemes have yet to materialize.

Jos Vermeulen, head of solution design at Insight Investment, which manages £665 billion in assets in the UK, stated, “We believe it’s important to prioritize DB schemes – they have the potential to generate funds more quickly than other areas.” He added, “There’s a potential for £100 billion to be unlocked in the next 12 to 24 months... this is a once-in-a-generation opportunity to change the UK's fortunes... if you miss this opportunity, it could disappear permanently.”

Owen McCrossan, investment director for pension schemes at Abrdn Group, noted that DB pension schemes “could definitely serve as a capital pool to help fill the gap in productive financing.” He mentioned that an allocation of 5% to productive assets like real estate and infrastructure could “raise about £50 billion.”

This amount aligns with the government's hopes of directing the same sum towards productive assets under its plans to consolidate defined contribution workplace schemes into at least £25 billion in funds by 2030. Calls for reforms to the rules governing DB schemes have come alongside the postponement of a review on pension adequacy, which was expected to outline the government's plans to increase automatic enrollment pension savings rates in hopes of promoting further investment in the UK.

Vermeulen emphasized the critical importance of including DB pension reforms in the retirement bill to be presented by mid-next year.