The government has been urged to remove existing barriers to increase pension investment in UK, with Pensions UK arguing that the right reforms could enable UK pension schemes to do "even more" to back innovation and infrastructure.

Responding to the Business and Trade inquiry into the real economy, Pensions UK argued that although UK pension funds already invest billions in the domestic economy, structural and regulatory barriers still constrain their ability to commit more capital to long-term, productive assets. 

Indeed, the response noted that while UK pension schemes collectively hold £3.2trn, much of this remains tied up in low-risk assets such as gilts and investment-grade credit, limiting capital flow into productive UK investments. 

The variation in the pensions landscape is contributing to this, as Pensions UK warned that defined benefit (DB), defined contribution (DC) and Local Government Pension Schemes (LGPS) face distinct structural and regulatory constraints that shape their investment strategies. 

In addition to this, however, it said that a lack of investable UK opportunities, planning delays, regulatory uncertainty, and inadequate fiscal incentives are continuing to hinder large-scale pension investment in growth assets. 

Although Pensions UK said that the Mansion House Accord and measures in the current Pension Schemes Bill are "positive steps", suggesting that the current bill goes "as far as is necessary" to address the major structural issues in the workplace pensions market, it emphasised that further reforms are needed. 

In particular, the group argued that strengthening the pipeline of UK projects, introducing targeted tax and investment incentives, consolidation (particularly in DC), and raising contributions are key to unlocking long-term domestic investment. 

"Addressing short-termism, enhancing stewardship, and supporting aggregation mechanisms are critical steps toward unlocking the full potential of institutional capital for UK growth," it stated.

Pensions UK acknowledged that progress is being made, with planning reform underway, the Industrial Strategy published, the NISTA database launched and the Office for Investment up and running.

However, it argued that the key now is to implement these reforms at speed if the country is going to meet its ambitious growth targets.

Pensions UK executive director of policy and advocacy, Zoe Alexander, said: “As the Mansion House Accord set out, pension schemes are reliant on a robust pipeline of investable opportunities in order to continue to deliver significant capital at scale. 

"The government and industry must work together to provide certainty, transparency, and risk-sharing mechanisms that enable further long-term investment in UK growth.

"Pensions are already heavily invested in the UK and acting as a powerful engine of national renewal – with the right reforms they can do even more to back innovation, infrastructure, and the long-term prosperity of the UK economy.” 

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