DC pension funds could allocate £100bn to infrastructure to improve results | New

More than £100bn (€120bn) of the capital of the UK’s defined contribution (DC) pension scheme could be allocated to infrastructure investment, according to a report by one of the leading consultancies. country pension advice.

Hymans Robertson’s article suggests that investing in infrastructure could “improve outcomes” for members of defined contribution pension schemes while contributing to the UK government’s upgrading program and net zero targets.

The research coincides with efforts to allow DC pension plans to invest more in illiquid assets, through performance fee reforms 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 journey.

Hymans Robertson also estimates that more than £250bn of DC pension assets could be invested in illiquid investments more generally.

Investing in infrastructure specifically has the potential to improve retirement outcomes for DC savers by up to 20%, he concluded.

Callum Stewart, Head of DC Investments at Hymans Robertson, said: “As governments around the world begin to recognize the importance of a more balanced and sustainable economy, the value of high quality infrastructure has never been so clear.

“Our research reveals that there is the potential for over £100bn of assets to be used in this area over the next decade, reflecting the growth in size of the DC Regime space.

“There are opportunities to not only improve retirement outcomes for DC savers, but also to help build a more sustainable world.

“There is now a real belief that such development can, in tandem, lead to the achievement of climate change targets, as the UK strives to embrace net zero.

“Given this investment potential, we believe DC savers can afford to take on more risk through illiquid assets. For members early in their savings journey, risk can be rewarded in the long run, with a clear opportunity to improve returns – in some cases up to 20%.

“Any long-term capital commitment often associated with investing in illiquid assets should not be an immediate concern for defined contribution plans, given the very long time horizons of savers.

“Investing in infrastructure is 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 that their members’ money is used, not just to generate good returns, but to do good in the world.”