Revitalising the UK market – pension reform

Important announcement – The Chancellor announced important changes for DC pensions at the weekend, including disclosing their levels of investment in British businesses, costs, returns and comparisons to competitor schemes.

Shining a light – Disclosure is generally poor in the UK, which impairs ability to understand where pensions are invested and how they perform. These changes will improve accountability.

Just the start – This is an important initiative, which should fundamentally change the approach to pensions. For far too long poor performance has been tolerated as well as an absence of recognition of the wider role pensions play in society.


The key changes in the announcement are:

  • DC pension funds will have to disclose their levels of investment in British businesses.
  • The funds will have to disclose their costs and net investment returns. 
  • They will be required to publicly compare their performance data against competitor schemes, including at least two schemes managing >£10bn in assets. 
  • Poorly performing schemes will not be allowed to take on new business from employers. 

The plans are subject to a consultation by the Financial Conduct Authority and are due to be in place by 2027. We strongly recommend that the FCA implements these rules in recognition of the fundamental damage that the exodus of pension assets from UK businesses has had to the health of the economy, which is fundamentally detrimental to all stakeholders.

These measures should be part of initiatives to encourage investment in the UK. The focus on both cost and net investment return is important as we believe there is far too much focus on cost and not nearly enough on the net return. We also welcome the determination to provide performance comparisons – there is currently far too much acceptance of poor scheme performance rather than robust challenge. A small annual difference makes a massive difference over time.

A good comparison is between Nest, which is the UK’s largest DC scheme with >£30bn AuM and 12m participants. In the Nest annual report, there is no ability to understand the level of investment in the UK or the underlying assets. There is also no commentary on the contribution to UK society or economy. Compare and contrast with AustralianSuper. This is Australia’s largest DC scheme with AuM of A$315bn and 3.3m members. Its annual report has a section on how much the fund is invested in Australian companies (A$65bn), as well as to how it makes a positive contribution to members’ retirement and the Australian economy. This direct linkage is sorely missed in UK pension schemes.

Implementation timetable

There are three years for full implementation to occur, which incorporates time for the FCA consultation. However, pension funds will clearly see the direction of travel and many will voluntarily provide the data well ahead of time.

Why is this required?

Pension funds have largely abrogated their responsibility to the UK over the past 25 years. There are several reasons for this, including risk aversion, tax position and companies’ desire to offload their schemes. Pension funds used to be core investors in listed companies and specifically UK equities, but the latter has diminished from 44% in 1998 to 4% currently. This has been detrimental to pensioners’ incomes, companies’ cash flow, UK tax take and economic growth.

Most important, we need to recognise that pensions do not exist in the ether but are crucial to the economy and to people who live in the UK. Most people want a combination of higher pensions and better public services, but neither of these are possible if pensions are run with too much emphasis on risk and an absence of investing in the UK.

More to be done

  • Mansion House Compact – broaden initiative to include listed small & midcap companies (AIM is included) and accelerate the timetable.
  • Pension funds should not only state their investments in the UK, but include a split between listed shares, private investments, gilts and corporate bonds.
  • DB schemes should also have to disclose their UK investments.
  • Pension funds should report on their UK investments in terms of performance, contribution to economic growth and ESG targets.
  • Pension funds should clearly state their purpose and reference their targets alongside their sponsor’s objectives.
  • Companies with a pension scheme surplus should be encouraged to maintain the scheme rather than secure a buy-out. A proportion of the surplus could be apportioned to higher-growth assets and the company and pensioners could see benefits through greater access to the surplus (with sensible caveats applied).

Pensions lost the ability to reclaim ACT under Gordon Brown’s changes. The impact was £5.4bn at the time (1999) given the scale of investment in equities. Restoring a tax credit for investing in UK listed companies would both grow the UK economy and improve outcomes for pensioners.