The UK’s largest pension funds have invested £280bn into the domestic economic through a range of investments which include infrastructure and housing allocations, according to new research.
The report from WPI Economics says these investments generate £71.3 billion in total economic gross value added in the UK over a three-year period after the investment is made, and have supported 320,000 UK jobs.
This report comes in the wake of the Government’s Mansion House Accord, signed by 17 pension funds this week, which seeks to further boost investment into private markets. The Accord sees DC workplace schemes pledge to invest 10 per cent of their relevant default funds into these assets, with half of this in UK investments.
While the report finds these private market investment strategies are delivering benefits to both members and the wider economy, it cautions against mandating targets for private market investments across the sector.
The research paper – The scale of it: the added value of independent and scaled UK pension funds for the economy, members, and society – found that the key to achieving these benefits of scale is the investment freedoms UK pension funds have to efficiently allocate the assets under their management in line with their members’ best interests.
It adds that the government’s focus on growth and productivity provides an opportunity to build the UK’s attractiveness to investors and pension funds’ ability to provide the returns members and employers need.
It says while the UK needs to become more attractive to investment, mandation of how large pensions invest creates risks and will not address the wider barriers the government has already identified, including fiscal incentives, planning system bureaucracy and the need for clear and consistent industrial strategies.
The report says the scale and sophistication of these large pension funds enables them to pursue advanced investment strategies in UK private markets and to secure greater access to global opportunities, supporting diversification. This in turn supports the UK Government’s objective of sustainable long-term economic growth.
It added that these pensions funds also have £37.4 billion invested in the UK corporate bond market, saving UK businesses £120 million in the cost of capital per annum. The report adds that these largest pensions funds allocate £1 in £4 to private markets versus £1 in £9 for the rest of the sector, with around half of this in UK assets.
WPI Economics director of policy Joe Ahern says: “The findings of today’s research show the positive impact already being made by large pension funds in the UK, including the benefits to their members, the economy and society.
“With these benefits in mind, it is important to be conscious of the potential unintended consequences that could flow from directing pension funds on how and where to invest. Investment freedoms are key to these funds playing a strong role in society and in the economy while getting the right outcomes for pension savers.”
Brightwell CEO Morten Nilsson adds: “UK based asset owners have a clear alignment of interest with domestic assets and already deliver a huge amount to the economy.
“Consolidation and creating scale is key, and is gathering pace in the industry. This will deliver far reaching benefits – but for these benefits to be fully realised, retaining independence to invest in the best way to meet the needs of members and savers, without intervention, is paramount.”
Rachel Elwell, CEO of Border to Coast Pensions Partnership, added: “From patient capital to business, through investing in infrastructure to supporting the energy transition, the UK economy and wider society enjoys huge benefits from large pension funds using their scale and sophistication to invest for the long term.
“Harnessing these benefits and removing obstacles to investment will be critical in achieving our shared ambitions for UK growth.”
