Industry experts have stressed the need to put member security at the forefront of any changes to the pension market, cautioning the government against potential mandating or legislating for particular investment allocations.

The government recently launched a call for evidence to help inform the first phase of its pension investment review, which will aim to boost investment, increase pension pots and tackle waste in the pensions system.

In its response to the consutlation, the Society of Pension Professionals (SPP) agreed that scale can deliver improved investment, although it warned that that there are risks, which must be guarded against.

This was echoed by Aegon, which said that while both group personal pensions (GPPs) and master trusts have a "major" role to play in delivering scale and value for money, ‘requiring’ governing bodies to invest more in UK productive assets poses major risks.

“It would be highly risky to legislate for particular investment allocations," Aegon pensions director, Steven Cameron, said.

"Trustees and Independent Governance Committees (IGGs) will be very much against being forced to invest their schemes assets in a particular way if they believe this is not in the member’s best interests.

"The government could set an overriding requirement that a minimum percentage of assets had to be invested in UK productive assets. But this has the potential to backfire on the government, if it is viewed as people’s pensions propping up the UK economy, or in future if such asset classes underperform.

“In addition, the Value for Money (VfM) framework currently being consulted on, with its strong focus on comparisons with peers, could ironically create a herd mentality and discourage governing bodies to take ‘outlier’ positions with such investments."

The Investing and Saving Alliance, head of retirement, Renny Biggins, also stresesd the need for trustees and governance committees to retain the flexibility to make investment decisions that serve their members best, and not be forced to invest in underperforming UK assets.

"A one-size-fits-all approach would undermine the core objective of providing VfM," he said.

“While global equities have outperformed UK stocks in recent years, the solution lies in incentivising investment in UK productive finance through measures like reinstating the dividend tax credit or scrapping stamp duty – not through compulsion.

"In the absence of strong UK stock performance, there’s an urgent need for targeted incentives to help stimulate economic growth by increasing both the number of UK investment opportunities and the capital directed towards them.

And despite the focus on consolidation, Biggins argued that although larger schemes may offer governance advantages, smaller schemes, such as single employer trusts, can bring "critical" benefits.

"Their closer ties with employers and employees can foster more personalised services and greater engagement, often exceeding what master trusts and GPPs can offer," he continued.

"At the heart of every pension scheme is the duty to safeguard members' financial futures. If we want to see more investment directed into UK opportunities, we need smart, targeted policies that balance risk and reward, while ensuring members always receive the outcomes they deserve."

PensionBee also emphasised that while consolidation in the defined contribution (DC) market may offer advantages, it does not guarantee higher returns for savers.

"While consolidation offers potential benefits like reduced costs and regulatory simplicity, it is not a silver bullet for stronger returns, but it can facilitate the expertise needed to drive an expansion into more complex asset classes," PensionBee director of public affairs, Becky O’Connor, explained.

Given this, it agreed that the focus should be on creating conditions that enable diversified investment strategies, rather than relying solely on size, calling on the government to consider tax relief as a "powerful incentive" for increased investment in UK productive assets.

The group also argued that greater regulatory simplfication is neeeded, suggesting that all schemes should operate under a single regulator.

This, according to PensionBee, would help steer schemes towards new diversified investment strategies with exposure to UK productive assets, provided there are clear incentives or requirements in place.

Most importantly, however, O’Connor argued that "it is crucial that any changes prioritise savers’ best interests".

"We urge the government to focus on fostering a diverse investment landscape that balances innovation with protection, ensuring savers' rights are upheld at every step," she stated.

"A unified regulatory approach, the offering of incentives like tax relief and the development of innovative solutions to solve the problem of asset class illiquidity, could unlock new investment in UK productive assets, while safeguarding long-term growth and security for savers."

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