The government should use the upcoming value for money framework to help pension schemes shift their focus from short-term considerations to long-term returns in defined contribution (DC) pensions, leaders from the pensions and private capital industry have said.

The British Private Equity and Venture Capital Association (BVCA)-led group advocated for this approach as data had demonstrated that private capital funds generate the highest average returns compared to alternative UK assets.

In particular, BVCA analysis revealed that, since 2001, investors in private capital funds have collectively earned up to 33 per cent more than an equivalent public equity investment.

Therefore, the group believed that priortisting this objective can lead to meaningful change in the market’s approach over the coming years and improve retirement outcomes for pension savers.

The group also urged the FCA to update specific regulations, stating its current “permitted links” rules limited the types of investment vehicles available to the unit-linked life insurance platforms commonly used by DC schemes for investment.

According to the group, amending these rules to widen the investment vehicle options would encourage DC schemes to provide new ways for savers to benefit from the UK’s private markets.

The group added the government should draw inspiration from overseas initiatives that generate significant investment in sectors like life sciences, climate and deep tech, and use these examples as models when designing new efforts to boost investment in priority sectors.

BVCA chief executive, Michael Moore, said: “Getting more DC pension investment in fast growing businesses could be a game changer for our economy – providing finance for some of our most exciting sectors. It also means pensions savers can benefit from more diversified portfolios and the strong returns private capital can deliver.”

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