The government should back its UK growth mission with a “bold and creative” stance on pension fund investment that will benefit UK pension savers, the Pensions and Lifetime Savings Association (PLSA) has said.

The PLSA outlined 10 recommendations for the government, aimed at using investment and fiscal incentives to encourage pension schemes to allocate more of the nation’s savings to UK assets.

The association noted that a debate about a perceived under-investment of the £3trn UK pension sector in British companies has been ongoing since early 2023.

It acknowledged that pension funds already invest around £1trn, about a third of their total assets, in the UK, with a large share going into government bonds, corporate bonds, public and private equity, and property.

However, the government is currently looking at how the pension system could support greater investment in the UK, particularly in private markets.

Given this, the PLSA emphasised that it was “essential” for pension funds to maintain the freedom to make investment decisions that serve the needs of scheme members and savers.

The 10 recommendations aim to build on previous PLSA work, which identified a range of policy interventions that might encourage defined contribution and open defined benefit schemes to invest more in UK assets.

These recommendations included: Greater use of blended finance; expanding the long-term investment for technology and science initiative; including guarantees in government commitments for large-scale infrastructure projects; and co-investment vehicles with British Patient Capital.

In addition to this, the PLSA suggested that the capital behind the National Wealth Fund (NWF) and British Business Bank could act as a government-backed provider of liquidity.

It proposed expanding current plans to establish the NWF to create a suitable vehicle to attract large-scale pension investment.

In terms of fiscal incentives, the PLSA recommended: Reducing the effective tax rate for pensions in holding UK shares by allowing a tax credit on dividend payments like in Australia; addressing the issue of stamp duty; discount on pension levy if they invest in certain locations or sectors; incentives provided for net zero sector or regionally based investment.

The association also suggested that investment into the NWF could be provided with a fiscal incentive, possibly modelled on those used for venture capital trusts and seed enterprise investment scheme. 

The PLSA previously argued that a large part of a broad strategy should be implementing wider reforms to increase investment by UK pension funds, including changes to the regulatory framework, enabling consolidation of pension funds, and focusing on performance and value for money.

Commenting on the recommendations, PLSA chief policy council, Nigel Peaple, said: “There are many levers the government can pull to catalyse pension fund investment in the UK.

“Well-designed investment and fiscal incentives, focused on creating long-term value for pension savers, have the potential to swing UK assets back into favour versus similar opportunities globally.

“Looking overseas, it is no coincidence that a country such as Australia, which has a clear fiscal incentive for investing in the local economy in the form of a generous dividend tax regime, also has one of the highest pension asset allocations to domestic shares.

“We ask the government to back its UK growth mission with a bold and creative stance on pension fund investment that will work for UK pension savers.”

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