Skip to main content
PGIM LogoPGIM Logo
    • Megatrends
    • Annual Best Ideas
    • OutFront Series
    • Quarterly Market Outlooks
    • Vantage Point Series
    • Market Events
    • Thought Leadership
    • Events & Webinars
    • Video Library
    • Podcasts
    • Investing in Alternatives
    • Risk Management
    • ESG Investing
    • Opportunities in EM
  • Alternatives

    • PGIM Private Alternatives
    • PGIM Private Capital
    • PGIM Real Estate
    • Montana Capital Partners (PE)

    Equity & Fixed Income

    • PGIM Fixed Income
    • Jennison Associates

    Solutions

    • PGIM DC Solutions
    • PGIM Multi-Asset Solutions
    • PGIM Quantitative Solutions

    Intermediary Distribution

    • PGIM Investments
    • Clients We Serve
    • Defined Contribution
    • Financial Advisors
    • Institutional Relationships
    • Global Locations
    • Contact Us
    • Overview
    • Leadership
    • History
    • Our Businesses
    • Diversity, Equity & Inclusion
    • Global Locations
    • Contact Us
    • Subscribe
    • Request for Information
    • Careers at PGIM
    • Job Opportunities
    • All News
    • Press Releases
    • In the News
    • Facts & Figures
    • Media Contacts
Quick Take

UK Pension Reforms: A New Horizon AwaitsUKPensionReforms:ANewHorizonAwaits

Jul 26, 2024

Landmark review can unlock billions of pounds of capital to support economic reforms.

Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL
  • Print

Share

  • Proposals could accelerate consolidation in the fragmented pensions sector
  • Resulting investing giants will enjoy lower costs, greater investment capacity
  • Allocations to alternative assets could drive investments into growth sectors

Planned UK pension reforms have the potential to transform the fragmented landscape of its £2 trillion ($2.5 trillion) pension fund sector and enable billions of pounds of capital to boost growth in the struggling economy.

Pension reform was outlined as part of Prime Minister Keir Starmer’s legislative agenda during the King’s Speech last week, and Chancellor Rachel Reeves  has kicked off a landmark pensions review as part of the Government’s mission to “boost growth and make every part of Britain better off.”1

Pension reforms are widely seen as key to revitalise the country’s sluggish capital markets. The UK pension industry is the third biggest in the world, after the United States and Japan, according to a 2024 study by the Thinking Ahead Institute.2

A key objective of the Pension Schemes Bill is to drive consolidation within the corporate Defined Benefit (DB) sector, through the use of Superfunds. Defined Benefit schemes currently hold around £1.4 trillion in assets across around 5,000 pension schemes.3

The pensions review will initially focus on the Local Government Pension Scheme (LGPS) and defined contribution (DC) schemes.  While the 87 funds within the LGPS have made progress in merging their investment operations into 8 pools in recent years, the Government is keen on further consolidation. In aggregate, the £360 billion scheme is the seventh largest pension fund in the world, but fragmentation means that the £2 billion that it incurs in fees annually could be reduced.

For DC schemes, member outcomes are the primary focus within the Bill – it will include a value for money framework and insist on DC schemes providing members with retirement income options.  The Chancellor plans to unlock billions of pounds of investment in the UK economy from DC schemes, and believes that pension pots for savers in DC schemes could in this way be boosted by over £11,000.3

The next phase of the review starting later this year will consider further steps to improve pension outcomes, increase investment in UK markets, and assess retirement adequacy.

The resulting consolidation - where £148 billion is held across 1,080 DC trusts, according to government data - will hope to mirror Australia’s 2021 introduction of a value for money test within its ‘Your Future, Your Super’ reform package, a move which has helped drive consolidation in its superannuation sector.

Pension industry consolidation is broadly in line with trends seen in other major developed markets. Official data shows that the number of Swiss Pension Plans has declined by 40% over the past decade. Similarly, the number of Dutch Pension funds have declined over 80% since 1997, according to industry data.

A shift in allocations

Equity allocations shift from public to private markets as plans increase in size

Source: PPF Purple Book 2023, figures 3.12 and 7.9. PGIM IAS Calculations.

Economies of Scale

The resulting bigger pools of investment capital have the capabilities to invest beyond traditional asset classes such as publicly listed stocks and debt. Bigger investment pools benefit from economies of scale as they spread fixed costs across a wider base and exert greater bargaining power, but this is only part of the story.

Larger investors can afford more sophisticated governance arrangements. These provide the capacity to invest in private markets and to engage with market participants to structure transactions that meet their investing objectives. Scale opens the door to investing in asset classes that can provide differentiated sources of return, such as direct lending or infrastructure projects.

In recent years, media headlines have focused on the diminishing footprint of UK pension funds in the public markets. Allocations to UK public equities by domestic defined benefit plans has fallen to 23% of plan assets by 2023 compared to 81% in 1993, according to official data.

But a likely welcome development from policymakers’ perspective is that larger pension pools will lead to greater participation in private markets. Institutional investments into private assets can help the government’s objectives of attracting longer-term capital into the broader economy to fund some key economic projects, such as the green energy transition, for example.

The Universities Superannuation Scheme (USS) - the UK’s largest private sector pension plan – reports that it invests £28 billion in private UK markets, representing 46% of the plan’s private market sleeve.4

Potential increased demand for UK assets and projects needs to be matched with adequate supply of suitably structured projects. Measures have already been announced to fix the planning system and to create of a new National Wealth Fund.

Incentivising the creation of large superfunds in the pension industry could also boost overall returns net of fees, despite the potential for these large pools to pivot towards allocations which typically involve higher costs than public markets.

One thing is for sure, the review represents a major opportunity to provide a starring role for the UK pensions sector in the country’s economic growth over the next few decades.

Stuart Jarvis

Managing Director, Institutional Advisory & Solutions, PGIM

You may also like

A Dutch Lesson on Redefining Retirement Solutions
Quick Take

A Dutch Lesson on Redefining Retirement Solutions

Apr 23, 2025

How are CIOs responding to the great DB to DC shift as the rest of Europe looks on?

Germany Releases Fiscal Brakes: A Strategic Shift
Quick Take

Germany Releases Fiscal Brakes: A Strategic Shift

Mar 24, 2025

Germany’s decision to relax its borrowing limits signals a seismic shift in its economic strategy, unlocking over €1 trillion in potential spending.

German Elections 2025
Quick Take

German Elections 2025

Feb 25, 2025

Germany is entering a pivotal moment in its political and economic landscape. Discover the strategic implications for investors after their recent election.

  1. https://www.gov.uk/government/news/chancellor-vows-big-bang-on-growth-to-boost-investment-and-savings
  2. Global Pension Assets Study, 2024. Thinking Ahead Institute.
  3. FINAL - 17/07/24 King's Speech 2024 background briefing final GOV.uk.docx (publishing.service.gov.uk)
  4. https://www.uss.co.uk/how-we-invest/where-we-invest/private-market-investments

The comments and opinions contained herein are based on and/or derived from publicly available information from sources that PGIM believes to be reliable. We do not guarantee the accuracy of such sources of information and have no obligation to provide updates or changes to these materials. This material is for informational purposes and sets forth our views as of the date of this article. The underlying assumptions and our views are subject to change.

In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V. with registered office: Gustav Mahlerlaan 1212, 1081 LA  Amsterdam, The Netherlands. PGIM Netherlands B.V. is authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands (Registration number 15003620) and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union.

© 2024 Prudential Financial, Inc. (PFI) and its related entities. PFI of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. PGIM, the PGIM Logo and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

  • Insights

    • Megatrends
    • Annual Best Ideas
    • OutFront Series
    • Quarterly Market Outlooks
    • Market Events
    • Thought Leadership
    • Events & Webinars
    • Video Library
    • Podcasts
  • Investment Themes

    • ESG Investing
    • Investing in Alternatives
    • Investing in Emerging Markets
    • Risk Management
  • Our Businesses

    • PGIM DC Solutions
    • PGIM Fixed Income
    • PGIM Investments
    • PGIM Multi-Asset Solutions
    • PGIM Private Alternatives
    • PGIM Private Capital
    • PGIM Real Estate
    • Montana Capital Partners (PE)
    • PGIM Quantitative Solutions
    • Jennison Associates
  • Clients

    • Clients We Serve
    • Defined Contribution
    • Financial Advisors
    • Institutional Relationships
  • About

    • Overview
    • Leadership
    • History
    • Diversity, Equity & Inclusion
    • Global Locations
    • Contact Us
    • Subscribe
    • Request for Information
  • Careers

    • Careers at PGIM
    • Job Opportunities
  • Newsroom

    • All News
    • Press Releases
    • In The News
    • Facts & Figures
    • Media Contacts
PGIM Logo
  • Terms & Conditions
  • Privacy Center
  • Accessibility Help
  • UK Regulatory Disclosures
  • Netherlands Regulatory Disclosures
  • Canadian Regulatory Disclosures
  • Ireland Gender Pay Gap Report
  • Cookie Preference Center

For Professional Investors only.* All investments involve risk, including the possible loss of capital.

This material is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM is the principal asset management business of Prudential Financial, Inc. and a trading name of PGIM, Inc. and its global subsidiaries. PGIM, Inc. is a registered investment adviser with the U.S. Securities and Exchange Commission (“SEC”). Registration with the SEC does not imply a certain level of skill or training.

The information on this website is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. In making the information available on this website, PGIM, Inc. and its affiliates are not acting as your fiduciary.    

In the United Kingdom, this website may be issued by PGIM Private Alternatives (UK) Limited or PGIM Private Capital Limited.  In the European Economic Area (“EEA”), this website may be issued by PGIM Private Capital (Ireland) Limited or PGIM Luxembourg S.A. or PGIM Real Estate Germany AG.

PGIM, Inc. has its headquarters at 655 Broad Street, Newark, NJ 07102. PGIM Private Capital (Ireland) Limited has its registered office at IDA Business Park, Letterkenny, Co. Donegal, F92 FP83, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and registered in Ireland under company number 635793 operating on the basis of a European passport. PGIM Limited and PGIM Private Alternatives (UK) Limited have their registered offices at Grand Buildings, 1-3 Strand, Trafalgar Square, London WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number: 193418). PGIM Private Alternatives (UK) Limited is authorised and regulated by the FCA of the United Kingdom (Firm Reference Number: 181389). PGIM Private Capital Limited has its registered address at 1 London Bridge, London SE1 9BG and is authorised and regulated by the FCA of the United Kingdom (Firm Reference Number: 172071). PGIM Luxembourg S.A., Netherlands Branch is registered with the Netherlands Chamber of Commerce under number 85998877 and has its local offices at Gustav Mahlerlaan 1212, 1088LA Amsterdam, The Netherlands. PGIM Luxembourg S.A. has its registered address at 2 Boulevard de la Foire, L-1528 Luxembourg and is authorised and regulated by the Commission de Surveillance du Secteur Financier (“CSSF”) in Luxembourg (registration number A00001218). PGIM Real Estate Germany AG has its registered address at Wittelsbacher Platz 1, 80333 Munchen, Germany and is authorised and regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (“BaFin”) in Germany (registration number 10138142).

In Japan, information is provided by PGIM Japan Co., Ltd. (“PGIM Japan”) and/or PGIM Real Estate (Japan) Ltd. (“PGIMREJ”).  PGIM Japan, a registered Financial Instruments Business Operator with the Financial Services Agency of Japan offers various investment management services in Japan.  PGIMREJ is a Japanese real estate asset manager that is registered with the Kanto Local Finance Bureau of Japan.

In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 of the Securities and Futures Ordinance (Cap. 571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a regulated entity with the Monetary Authority of Singapore under a Capital Markets Services License to conduct fund management and an exempt financial adviser. This material is issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act 2001 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Section 305 of the SFA. In South Korea, information is issued by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.   

Prudential Financial, Inc. (“PFI”) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. 

*PGIM.com/Podcasts and its content is intended for informational or educational purposes only and is not directed exclusively to Professional Investors. 

PGIM Logo
PGIM Logo

You are viewing this page in preview mode.

Edit Page