Around two-thirds of pensions and investment professionals support the government’s ambition to boost UK investment through pension funds, but only where it aligns with strong outcomes for members, research from LCP and Frontier Economics has revealed.

The poll, conducted during a joint webinar on 30 March, showed that while there was broad backing for the productive finance agenda, support was conditional.

Meanwhile, approximately one in six respondents said they were fully supportive, arguing that pension capital should “work harder for the UK economy”, while a similar proportion were strongly opposed, warning that the government “should not be meddling”.

The findings came alongside the publication of LCP and Frontier Economics’ report, which set out a framework for assessing when and how policy intervention in pension fund investment is justified.

The report highlighted that, as UK defined contribution (DC) schemes grow and consolidate, they are likely to naturally increase allocations to private markets and infrastructure without the need for prescriptive intervention.

However, the report also cautioned against relying on international comparisons to justify policy action.

It warned that while countries such as Australia and Canada appeared to have higher domestic investment levels, structural differences - including system maturity, scale and regulatory frameworks - meant these were not necessarily appropriate benchmarks for the UK.

Instead, LCP and Frontier Economics argued that policy should focus on identifying genuine market failures, such as information gaps, coordination challenges or externalities, where socially beneficial investments were not being delivered at sufficient scale.

Meanwhile, the report stressed that capital was globally mobile and that there was no overall shortage of funding for productive investment.

However, it acknowledged that market frictions could lead to suboptimal allocation, particularly in areas such as early-stage technology, infrastructure, and long-term projects.

Given this, the authors urged policymakers to support, rather than constrain, trustee decision-making, ensuring schemes can continue to act in members’ best interests while investing in productive finance where appropriate.

LCP partner, Stephen Budge, noted that while there was no shortage of appetite among schemes to increase allocations to productive assets, practical barriers remained.

“In my discussions with schemes, I see no shortage of willingness to invest more in the kinds of assets the government is keen to promote," he said.

"UK DC pension schemes have made significant progress. However, building meaningful allocations to UK productive assets will take time.

“There remains a shortage of investable opportunities that can support this growth, which offer the right risk, return and liquidity characteristics, particularly against the backdrop of a rapidly changing DC market.”

Frontier Economics senior adviser, Paul Johnson, added that while there were clear opportunities for investments that benefited both members and the wider economy, intervention must be carefully designed.

“There are good reasons to believe that there are investments which pension schemes could be making which would benefit members and the wider economy alike,” he stated.

“But there should be a robust test before public money is used to subsidise or incentivise such investments. And governments should avoid both superficial comparisons with other countries and arbitrary ‘top-down’ targets for the level of investment in these ‘productive’ assets.”

Johnson also warned that giving governments the power to impose such targets would go too far, particularly where trustees were already required to act in savers’ best interests.

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