Mandating how large pension schemes invest to support UK growth could risk undermining the benefits these schemes already deliver to the UK economy, WPI Economics has suggested.

The research suggested that while the UK government is seeking to attract more investment, enforced allocation rules could fail to address broader barriers already identified, such as fiscal incentives, planning system bureaucracy, and the need for a “clear and consistent” industrial strategy.

WPI Economics’ report found that large UK pension funds deliver “significant” economic benefits to the UK, providing “vital” patient capital to businesses that are key to future economic growth.

According to the report, the UK's largest pension funds have invested in infrastructure and housing, estimated to have generated £71.3bn in gross value added in the UK over a three-year period after the investments are made and support approximately 320,000 jobs in that year from their investment in housing and infrastructure.

Additionally, these schemes hold £37.4bn of investments in UK corporate bonds, which help reduce the cost of capital for UK businesses by an estimated £120m annually.

When it comes to private markets, the largest schemes allocate more than the broader sector, allocating £1 in every £4, compared to £1 in £9 for the rest of the sector, with around half of these investments in UK-based assets.

In total, large pension funds are estimated to have invested £280bn across a range of UK assets.

WPI Economics stated that scale and consolidation are gaining momentum in the UK pensions system, in line with government ambitions.

Currently, 29.4 million people have their retirement savings invested with large UK asset-owning pension funds.

The report suggested that the scale and sophistication of these funds allow them to pursue advanced investment strategies in private markets and access global opportunities, enhancing diversification.

A key enabler of this success, the report argued, is the investment freedom these schemes currently enjoy, which allows them to act in the best interests of their members.

WPI Economics director of policy, Joe Ahern, said the findings show the positive impact already being made by large pension funds in the UK, including the benefits to their members, the economy and society.

However, he warned that it is important to be conscious of the potential “unintended consequences” that could flow from directing pension funds on how and where to invest.

“Investment freedoms are key to these funds playing a strong role in society and in the economy while getting the right outcomes for pension savers,” he added.

Brightwell CEO, Morten Nilsson, added that UK-based asset owners have a "clear" alignment of interest with domestic assets and already deliver a “huge” amount to the economy.

Although consolidation and creating scale is key and is gathering pace in the industry, which will deliver “far-reaching” benefits, for these to be fully realised, retaining independence to invest in the best way to meet the needs of members and savers, without intervention, is “paramount”.

Border to Coast Pensions Partnership CEO, Rachel Elwell, said: “From patient capital to business, through investing in infrastructure to supporting the energy transition, the UK economy and wider society enjoys huge benefits from large pension funds using their scale and sophistication to invest for the long term.

“Harnessing these benefits and removing obstacles to investment will be critical in achieving our shared ambitions for UK growth.”

Mandation of investments to support the government's UK growth agenda has been a key topic of discussion this week, following the announcement of the Mansion House Accord.

Industry experts have raised concerns about whether the accord, currently voluntary, will remain that way.

However, Pensions Minister, Torsten Bell, refused to be drawn into speculation over whether mandation could be considered if the signatories do not meet their commitments.

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