Goernment reforms aim to make pension funds more UK-centric

This, together with action the Government is already taking, could change the way pension funds deploy capital in the UK in future.

The UK Government has been studying emerging evidence and trends within pension fund investments. In a November 2024 report, it identified numerous ways in which domestic pension fund investment can benefit UK growth.

The longer-term investment horizon of pension funds enables them to invest in more illiquid assets, such as infrastructure and growth or venture capital. Long-term investment in such assets can help promote stronger economic growth in the UK whilst potentially also providing a range of attractive returns for pension schemes that will benefit savers.

As part of its ongoing pension investment review, the UK Government also published an interim report which included proposed measures on increasing scale in pension funds and for moving towards greater in-house expertise and capacity.

Further consolidation and in-house capability would permit pension funds to invest in a wider range of asset classes (such as private market investments) and ensure that those assets, and the relationships with specialist managers that are required to facilitate such investments, are managed more efficiently.

Whilst these trends and measures alone do not guarantee that pension funds will be investing more within the UK, the UK Government highlighted encouraging evidence that pension funds managing their own private market portfolios tend to have a significantly higher domestic weighting. Such evidence strengthens the UK Government’s case that proposed reforms on scale and in-house expertise could increase investment in the UK.

In addition to these proposed reforms, the UK Government is also establishing growth programmes, such as the National Wealth Fund and the British Growth Partnership, which are aimed at creating a pipeline of investable UK opportunities for pension funds. By putting in place these programmes, the Government is demonstrating a more strategic approach to mobilising capital for UK growth.

In our view, it is important for there to be genuine collaboration between these growth programmes and with the pensions industry to ensure capital can be deployed to catalyse UK investment.

Ahead of the introduction of the Pension Schemes Bill in 2025, the UK Government has consulted on potential reforms to improve pension saving outcomes and increase investment in the UK – both in respect of private sector defined contribution schemes and the local government pension scheme in England and Wales.

Clearly, the pensions investment review is aimed at increasing the level of pension fund investment within the UK. However, at this stage, there has not yet been any specific recommendations on UK investment beyond consideration of local investment by the local government pension scheme. A final report from the review will be published at a later date and this report is envisaged to further consider investment within the UK by pension funds.

Elaine MacGregor, Legal Director and investment funds specialist at Pinsent Masons