The entry of DC pension money into UK real estate has come to the rescue, argues Dominic Smith
A few years ago, defined benefit (DB) pension schemes, both public and private, started unwinding their portfolio real estate and equity holdings in favour of fixed income as they sought to reduce risk. This villain of investment outflows from real estate markets sparked fears of a slump in property asset values.
However, the data shows that although not quite as omnipotent as the Dark Knight, the entry of defined contribution (DC) pension money into UK real estate has come to the rescue.
What is more, DC has had the able assistance of the ageing boy wonder sidekick, public DB capital, which data suggests has seen inflows into real estate. Together, these heroes have been more than a match for the private DB sell-down villain.
The ONS publishes quarterly data on the holdings of funded occupational pension schemes in the UK, splitting them out into public DB, private DB, and public DC. This data can be used to determine the rough value of the property holdings in each bucket and how that has changed.
Figure 1 shows the data from the peak of real estate valuations in Q2 2022 to the most recent ONS datapoint for the end of Q3 2024 (released in April 2025). Over this time frame, the value of public DB property holdings has decreased by £5.6bn (€6.65bn) to £35.6bn, and that of private DB by £23.7bn to £42.6bn. However, public DC holdings have increased by £5.2bn to £9.5bn.
During that time, MSCI all property values declined by 22.4%. Assuming that DB and DC property portfolios performed in line with this market average, a significant amount of the above-value change would be attributable to market movement.
For private DB, the property portfolio value decline is roughly three parts market value fall and two parts disinvestment. Of the £23.7bn fall in the value of private DB property holdings, £14.9bn of this would be attributable to market movement, implying a further £8.8bn of net sales of property.
In contrast, public DB has apparently been a net buyer over the same period, as the £5.6bn decline in the value of the property holdings is less than the £9.2bn decline that would arise from market movement; the balance, of £3.7bn is the implied value of net purchases.
Meanwhile, private DC has been a net buyer to the tune of £6.2bn, after accounting for market movement of minus £900m in the value of its initial property holding.
Collectively, private DC and public DB net investment is £1bn greater than private DB net disinvestment.
Of course, there is a caveat to these figures, centred around the assumption that existing property holdings behaved – or were marked to market – in the same way and to the same extent as the MSCI universe.
This may not have been the case. If there is a lag in valuations, as may reasonably occur with accounting practice around less liquid stakes in indirect holdings – for example, that could effectively serve to inflate the net investment number – potentially under-stating net sales (or over-stating net purchases). The extent to which this is the case is unknowable, however.
That point notwithstanding, this data suggests that the concern of a couple of years ago that the rapid withdrawal of DB money from the UK real estate market would cause a severe imbalance in the volume of sellers versus buyers, resulting in a slump in real estate values, was overblown.
So far, such a slump has not materialised and market balance has been maintained. The DC superhero with its trusty weapon of auto-enrolment, propelling £6.2bn of net purchase of real estate assets, has helped maintain order in the UK property market neighbourhood, helping to make investor citizens feel safer.
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