The government has been urged to work with regulators, trade bodies and industry organisations to agree common asset class definitions and understandings, in order to achieve a single view of asset allocation across the pension sector.

The comments were made after a report from the Pensions Policy Institute (PPI) found that although the high-level picture suggests pension funds are moving away from equities and UK investments, the shift is “far more complex”.

The report, using a definition of UK productive assets that includes listed equities, corporate bonds, private equity and alternatives, estimated that 18 per cent of UK pension assets is invested in UK productive assets.

However, this share dropped to 6 per cent when using a much narrower definition that extends only to private equity and alternatives.

In its report, the PPI acknowledged that measuring and reporting asset allocation is “fraught with difficulties”, as definitions differ across the different organisations collecting data and between scheme types.

It also pointed out that asset class definitions currently overlap, for example infrastructure can also be included in equity or debt asset classes, while some asset classes can mean different things to different people and will need to be carefully defined.

Given this, it argued that, if the government wants to achieve a single view of asset allocations across the pensions sector, it will need to work closely across several organisations, including regulators, data collectors, media and the industry, to achieve common definitions and understandings.

More broadly, the PPI found that, when it comes to investment in these assets, "significant differences" exist between different types of pension scheme.

In particular, the PPI found that while private sector defined benefit (DB) pensions are the biggest investors in UK productive assets by value (£250bn), and public sector DB schemes are the biggest investors in UK productive assets by proportion of funds (31 per cent), defined contribution (DC) arrangements invest less by both value (£101bn) and proportion (19 per cent).

But the PPI said that there is potential for the government’s ambitions to drive greater pension investment into productive UK assets to be achieved, arguing that, to some extent, this is already happening.

In particular, the PPI said that consolidation in DC will support and drive greater diversification of asset classes.

However, it emphasised that this change will not come overnight, emphasising the need for patience as the transitioning takes full effect.

Commenting on the report, PPI head of policy research, Daniela Silcock, said: “While it would be very useful for both industry and government to better understand asset allocation trends, there are difficulties within the current landscape.

"Asset definitions differ across organisations collecting data and between scheme types. Some definitions also currently overlap, for example, infrastructure can also be included in equity or debt asset classes.

“This is an essential time for government, regulators and industry to work together to ensure consistent definitions and reporting standards. If this work does not take place soon, it will be difficult for schemes to comply with regulation and expectations.

“As the value of assets under management, especially for DC schemes, continues to grow, schemes will have greater opportunities to develop their investment strategies.

“If industry and policy-makers are not able to accurately track asset allocation, then not only will regulatory compliance be hindered, but it will continue to be very difficult to conduct cross-industry analysis, monitor changes over time, and help schemes to learn from each other's experiences.”

Adding to this, Phoenix Group chief investment officer, Mike Eakins, said: “As we seek to deliver the best outcomes for our 12 million customers it is important the industry, government and regulators have the best and most consistent data at their disposal to better inform policy making and investment decisions.

“We want to invest more into the UK on behalf of our policyholders to get the best returns for them but also benefit UK society.

“Now is the time for the key players to get round the table and work out how best we can invest our capital and how we can do so at pace and in key areas such as housing, infrastructure, energy and education.”

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