The government should consider a number of "urgent" pension reforms as part of its ongoing pension review, the UK Sustainable Investment and Finance Association (UKSIF) has said, arguing that "decisive" steps are needed to tackle current investment barriers.

The association's latest report, Unlocking UK pension capital for sustainable growth: Recommendations from UKSIF’s pensions review, showed that there are gaps in the current policy and regulatory framework for UK pension schemes.

Given this, it encouraged the government to take action to ensure the UK pensions system can drive long-term, sustainable growth across the country and support a more secure and resilient future for pension savers.

UKSIF CEO, James Alexander, stated: “The UK’s pensions system needs to quickly evolve to reflect the changing needs of millions of pension savers and the reality of climate change.

"There is a considerable role for government in the upcoming second stage of the pensions review to adopt decisive steps, including above all tackling the range of investment barriers preventing pension funds from contributing to sustainable growth and progress towards the UK’s climate goals."

In particular, UKSIF encouraged the government to address the existing investment barriers, arguing that the £3trn in pension assets, whilst currently "untapped", is ready to drive sustainable long-term growth.

"Across all sectors, various systemic investment barriers have consistently held back private sector investment, including from UK pension funds, in recent years, and stakeholders over the course of our review highlighted the need for the pensions review to adopt a sharper focus on these wider barriers," the report stated.

Key barriers included issues with planning reform and grid connectivity delays, uncertain public policy frameworks for various sectors and infrastructure projects, the need for clear and more innovative approaches to public-private partnerships, and energy market reform.

The report argued that progress in tackling these barriers, both during and beyond the lifetime of the pensions review, would naturally help boost the supply of investible projects across the UK for institutional investors, and negate the need for more drastic measures as part of the review.

In particular, UKSIF cautioned the government against more extreme measures such as mandation, arguing that this would not address the existing barriers, and could risk reducing investment returns for some pension scheme members and encouraging ‘asset bubbles’.

The group also stressed the need for greater long-term long policy and regulatory certainty across the wider UK economy for pension schemes and indeed investors at large.

Given this, it argued that the UK’s pensions investment review should seek to be more closely joined up and align with other government initiatives, which are seeking to provide consistent policy signals for various growth sectors and unlock private capital flows at scale

UKSIF suggested that changes to promote positive member outcomes and build on the success of auto-enrolment could also help to drive investment from the UK pension sector across the UK.

In particular, UKSIF encouraged the government to gradually increase default contribution levels to at least 12 per cent through incremental annual increases, suggesting that this could help address retirement income shortfalls, while also creating larger pools of capital for sustainable investments and other areas of productive finance.

In addition to this, UKSIF said that the review should explore new ways to further enhance how employers engage with their employees over their AE pensions.

UKSIF also called for a broader pathway for pension policy over the long-term, including specific measures to help address issues facing lower-income groups and younger savers, such as sidecar savings or opt-down options.

Indeed, the group argued that specific action is needed to help address the growing gender pensions gap, highlighting "alarming" statistics from Scottish Widows, which showed that the average woman is projected to receive £12,000 annually in retirement, compared to £19,000 for men.

In order to promote more effective investment decision making, UKSIF called for an industry-led taskforce to help streamline sustainability reporting for pension funds, reducing complexity and focusing on forward-looking, decision-useful disclosures that link directly to real-world sustainability outcomes.

It also argued that the regulatory approaches, particularly the Value for Money framework, need "fundamental" reform to move beyond short-term, cost-focused metrics and embrace forward-looking performance indicators that can better support long-term, sustainable investment strategies.

“We hope to see the government seize these opportunities in the pensions review’s second phase and commit to an ambitious long-term reform programme for the pensions system," Alexander added.

"Many pension funds we work with want to see a long-term roadmap for changes to auto-enrolment contributions, the finalising of a comprehensive ‘Industrial Strategy’ that pension funds and investors can get behind, and wider measures to drive economic certainty such as sector decarbonisation plans.”

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