Pension assets remained the single largest institutional client segment for the UK investment management industry in 2024/25, accounting for 51.2 per cent or £2trn of total assets managed by Investment Association (IA) members on behalf of institutional clients.

The IA's latest Investment Management Survey showed that pension fund assets as a share of institutional assets under management declined "sharply" to about 51 per cent, down from 56 per cent in 2023.

This marked a continuation of a multi-year fall for pension assets, whilst conversely,
insurance mandates continued to rise, reaching 28 per cent (from 26 per cent in 2023).

This was driven by a fall in defined benefit (DB) assets, as the IA noted that many DB schemes are winding down, prompting a 12 per cent in DB assets to £1.7trn, compared with £1.9trn in 2023.

On top of the reduction in DB assets, the survey found that the changing composition of the pensions market is largely attributable to a contraction in corporate pension schemes, which declined to 43.1 per cent from 47.3 per cent over the past year.

In contrast, however, Local Government Pension Scheme (LGPS) assets remained resilient and continue to grow each year, reaching £415bn by the end of 2024.

Workplace defined contribution (DC) assets also continued to grow as a proportion of pension fund assets, rising to £650bn last year, a 40 per cent increase since 2019. 

In addition to this, individual and self-invested DC arrangements rose from £750bn to £820bn.

The IA highlighted this as evidence of a structural shift in the pensions market as DC becomes the dominant form of scheme, suggesting that, if the UK pursues policy reforms that unlock the benefits of scale in the LGPS and DC sectors, it could deliver sustainable investment returns and deploy productive capital to support economic growth.
 
IA director of market insights and fund sectors, Miranda Seath, said: “2024 marked a period of evolution for the UK pensions market.

"While the resilience of the wider UK investment management sector is evident in the continued demand for its products and services both domestically and internationally, with AUM rising to a record £10trn in 2024, pensions had a more complex story.

"Although pension funds remained the largest institutional client base, if we look closer, a shift in the balance between DB and DC pensions is clear.
 
“Primarily, the interest rate environment prompted changes to the institutional client mix.

"Higher interest rates again helped more DB schemes to achieve full funding, shifting institutional assets away from pension funds to insurers as the schemes de-risk through buy outs or bulk annuitisation. This was partly reflected in the decline of pension fund assets and a rise in the percentage of assets managed on behalf of insurance clients.
 
“That said, workplace defined contribution assets continue to grow.

"If the UK pursues policy reforms that unlock the benefits of ‘sophisticated scale’ in the LGPS and DC sectors, it can unlock new opportunities to deliver sustainable investment returns for savers and deploy productive capital to support economic growth.
 
“As the UK’s pension system evolves and the risk of under saving for retirement is borne by the individual, the IA has called for greater saver engagement with their retirement choices and a stronger focus on retirement outcomes.”

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