UK Pension Schemes Bill expected to boost private markets investments
The newly passed UK Pension Schemes Bill is set to increase retirement savings’ exposure to private markets over time, several experts have said.
The Pension Schemes Bill was cleared by the UK parliament yesterday (28 April), after the House of Lords accepted final amendments, with it now proceeding to Royal Assent, after which it will formally become law.
Overall, the Bill requires UK pension funds to demonstrate that they are delivering value for money and to promote the consolidation of small pension pots, in a move aimed at increasing investment in private assets.
Alex Davies, founder and chief executive of investment broker Wealth Club, said the reforms represented “a meaningful structural shift in UK retirement investing”.
Davies argued that by driving consolidation and increasing scale, the Bill will significantly enhance the ability of pension schemes to invest in private markets, which, according to him, have historically been constrained by fragmentation, governance complexity and liquidity considerations.
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One aspect of the Bill aims to implement default consolidator schemes, which should drive greater consolidation among smaller pension funds.
Patrick Heath‑Lay, chief executive of the People’s Partnership, called the news “a historic moment” for the UK pensions’ market.
“These changes will further strengthen the UK pensions system and help it drive investment into the wider UK economy,” he said.
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Davies further noted that the pension reforms are likely to bring private markets “more into the mainstream” institutional asset class.
“Stronger governance frameworks and more sophisticated investment processes will make it easier for pension schemes to allocate to private equity, infrastructure and private credit as part of a broader total portfolio approach,” he added.
The most contested element of the Bill centred around the government’s proposed power to mandate private pension schemes to invest a minimum of assets into specific government-priority areas.
While mandation remained part of the agreed Bill, amendments and safeguards were introduced following severe criticism from the opposition, allowing savers’ best interests to supersede any form of mandation.
The UK government will now also have to disclose actions taken to address barriers to UK and private markets investments before using any mandation powers.
“This power may prompt some investors to think more carefully about how much control they have over their pension investments,” Davies added.
Read more: Wealth Club launches private markets SIPP for UK investors
