More than £100bn (€120bn) of UK defined-contribution (DC) pension scheme capital could be allocated to infrastructure investments, according to a report by one of the country’s major pensions consultancies.
The paper by Hymans Robertson suggests that investment in infrastructure could “improve outcomes” for DC pension members while also helping contribute to the UK government’s levelling-up agenda and net-zero goals.
The research coincides with efforts to enable DC pension schemes to invest more in illiquid assets, through reforms on performance fees and the creation of a long-term asset fund.
The report examines why opportunities within the illiquid sphere should be considered to improve outcomes for DC members at different stages of their journeys.
Hymans Robertson also estimates that more than £250bn of DC pension assets could be invested in illiquid investments more generally.
Infrastructure investment specifically has the potential to improve retirement outcomes for DC savers by up to 20%, it concluded.
Callum Stewart, head of DC investment at Hymans Robertson, said: “As governments around the world begin to recognise the importance of a more balanced and sustainable economy, the value of a high-quality infrastructure has never been clearer.
“Our research finds that there is potential for assets of more than £100bn to be used within this area over the next decade, reflecting growth in the size of the DC scheme space.
“There are opportunities not just to enhance retirement outcomes for DC savers, but also to contribute to the development of a more sustainable world.
“There is now a real belief that such development can, in tandem, lead to the meeting of climate-change goals, as the UK strives to embrace net zero.
“Given this potential for investment, we believe that DC savers can afford to take on more risk through illiquid assets. For members at the early stage of their saving journey, risk can be rewarded over the long term, with a clear opportunity to enhance returns – in some cases by as much as 20%.
“Any long-term capital commitment often associated with investing in illiquid assets should not be an immediate concern for DC schemes given savers’ very long time-horizons.
“Infrastructure investing means investing for the future. Generating a positive impact on the world by investing in tangible infrastructure projects also provides opportunities to engage DC savers.
“Schemes have a moral duty to ensure their members money is being used, not just to generate good returns, but to do good in the world.”
