£25B UK Pensions Pledge Could Boost Property Investment

A recurring theme of the UK real estate market over the past few years has been the lack of investment by domestic pension funds in the sector. But a new government initiative could change that.

A group of 17 pension fund managers overseeing workplace pensions is pledging to invest at least 5% of their assets in UK private markets by 2030, including in property. That equates to roughly £25B of investment in private markets in the UK, the Treasury said. 

The investment could include any private market assets, but large infrastructure and regeneration projects are likely to be a key feature, according to an announcement on the pledge. 

Investment by domestic pension funds in UK real estate shrank in recent years. Older defined benefit pension schemes were big investors in property but have been reaching the end of their lifespans as workers retire.

That meant selling property assets as newer defined contribution pension schemes favoured more liquid assets like stocks and bonds, failing to pick up the slack from their defined benefit forebears.

The pledge that the group of defined contribution pension managers signed aims to alleviate that issue. 

Signatories to the new commitment include: Aegon, Aon, Aviva, Legal & General, LifeSight, M&G, Mercer, NatWest Cushon, Nest, NOW: Pensions, Phoenix Group, Royal London, Smart Pension, the People’s Pension, SEI, TPT Retirement Solutions, and the Universities Superannuation Scheme.

“We believe that investing in private assets will benefit pension scheme members by delivering better expected returns over the long-term, ultimately resulting in higher retirement outcomes,” Aon Chief Investment Officer for DC Solutions Jo Sharples said in a statement. 

“This is a major opportunity for the pension and investment industry to support UK growth while delivering improved outcomes for pension savers,” Aviva CEO Amanda Blanc said.