Insurers and other pension risk transfer (PRT) providers are "ready" to invest up to £190bn of pension money into UK infrastructure over the next decade, analysis by Legal & General (L&G) has found.

This would plug almost a fifth of the UK’s infrastructure funding “mega-gap”, which, according to the firm, is likely to be as much as £1trn as regions across the UK "call out for greater investment to support our society’s needs”.

The report, The power of pensions: How pension savings can help to build the UK’s infrastructure and drive growth in all regions, highlighted investment in infrastructure as “key” to maintaining the long-term competitiveness of the UK economy.

It added that it was also “vital” to delivering the government’s modern “industrial strategy”, and would bring the economic stimulation and employment opportunities so “desperately” needed amid the current crisis.

The group stated that whilst the Spring Budget recognised the need for further infrastructure investments across the UK through “significant spending plans”, government alone cannot fund these projects, especially in light of the Covid-19 crisis.

However, insurers offering PRT, according to L&G, could help to close this infrastructure investment gap "significantly", with an estimated £150bn to £190bn of investment expected from insurers and other PRT providers over the next decade.

L&G explained that the UK PRT market has de-risked more than £64bn over the last two years alone, emphasising that this represents only a small proportion of the estimated remaining £1.6bn in DB scheme assets.

The Pensions Policy Institute (PPI) estimated that £770bn could come into play in the PRT market leading up to 2030.

It added that long-term infrastructure investments are often “very attractive” to insurers thank to the security, and steady cash flow for paying pensions as they fall due, associated with them.

Furthermore, the report noted that the cumulative size of the pension funds available allows insurers to diversify and spread any potential risk.

Combined with the long-term nature of pension provision, this makes PRT providers “ideally placed” to invest in infrastructure, according to the firm.

Legal & General Retirement Institutional CEO, Laura Mason, added: “By working with other insurers, we can use pensions savings to help plug part of the UK’s £1trn infrastructure gap, secure customers’ pensions and encourage the economic recovery.

“As an insurer, we have an important role to play by deploying pension funds to create a virtuous circle where older UK savers are funding infrastructure investments – creating jobs, homes and roads for other generations.”

The firm clarified however, that a number of changes need to made in order for “the power of pension investment to be realised”.

For instance, L&G have now called for a "renewed government commitment" to collaborate with the private sector and deliver “midi-projects” across the UK, which are worth between £100m and £1bn.

It stated that the “time is right” for a new model that incorporates more transparent performance measures to demonstrate value to investors and local communities, and a more holistic reference to the impact on peoples lives.

The report stated that whilst smaller in value than some headline projects, such as HS2, so called "midi-projects" can have a “huge societal and economic impact” nonetheless.

The group have also called for a focus on investment opportunities outside of London in order to “level-up” the opportunities available across the UK.

The report also highlighted the provision of a regulatory framework as crucial, stating that for infrastructure investment to be possible, financial regulation must be “fair, flexible and globally competitive” and allow the private sector to help deliver key projects.

The Social Market Foundation think tank recently also highlighted pension superfunds as "the key" to closing the infrastructure funding gap.

The Department for Work and Pensions also recently confirmed that they were "very keen to promote greater investment" in illiquids and infrastructure, stating that these hold "real value" as investments, and are also beneficial for the long term health of the economy.

However, earlier this year, industry experts warned that the government could risk walking a “fine line” in terms of telling pension funds where to invest in infrastructure, stressing that trustees must focus on earning a return, rather than simply looking at what investments are “socially worthwhile”.

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