The pensions bill, now in its final stages of amendments, is expected to see through a set of radical changes. The aspiration is to create greater opportunity for UK pension schemes to deliver better outcomes for their members and society more generally.

The government is concerned that despite progress made to date, initiatives such as the Mansion House Accord, employers pledge and changes to the Financial Conduct Authority’s value for money framework won’t be sufficient to meet its goals concerning demand for UK investment.

It therefore sought to include a reserve power in the pension bill to require the main default arrangement of master trusts and other workplace pensions to invest minimum amounts into UK and private market assets, should the government deem that necessary in the future.

This clause was rejected by the House of Lords in March 2026, although the House of Commons is expected to look to reinsert a watered-down clause that limits any power to a cap of 10 per cent of assets.

The government’s desire to include this mandation power likely reflects two well-recognised issues of the current pension system. Firstly, defined contribution savings are perceived to be insufficient to deliver the required income for a large part of the population to retire comfortably, an issue known as ‘adequacy’.

The Department for Work and Pensions estimates that 43 per cent of working-age people are under-saving for retirement.

Secondly, the UK economy is struggling with the risk of stagflation, with Office for Budget Responsibility projecting growth of only 1.1 per cent for 2026 in the face of CPI inflation currently at 3 per cent, well above the Bank of England target of 2 per cent.

The government believes there is a win-win outcome that solves both of these issues. The proposition is that private markets offer higher returns, and higher returns equate to larger savings pots. And more private market investment into productive assets will deliver more UK growth.

While simplistically this narrative appears appealing, the reality is less convincing.

While there is general acceptance that DC schemes have not benefited from strong returns available in private markets, performance itself has not actually been an issue for many DC pension schemes. Thanks to strong equity markets, many have performed very well. According to CAPA, the average DC provider returned 9.4 per cent a year over the five years to December 31 2025 for a younger saver. On top of this, costs within the pensions industry are incredibly tightly managed.

That said, the under-investment in private market assets is widely recognised in the industry. This reflects a number of historical factors including operational constraints, lack of investment products and a focus on minimising costs.

The mindset is changing and the industry has been working to incorporate private markets assets into strategies, where they are seen to add value net of fees and are consistent with members’ objectives.

Once the value for money framework is in place, providers will be strongly aligned to make private market allocations. This can’t happen overnight but the wheels are in motion. This is likely to involve more investment in the UK too, as pension schemes tend to demonstrate a home bias in private market investments compared with listed investments.

However, forcing more investment into the UK sooner than might otherwise be considered suitable risks harming returns and credibility if it leads to blind allocation of capital to the UK at any cost.

This issue is of greater concern in private markets than in listed markets given that deals are transacted in private at a price agreed between buyer and seller, so it is easy to overpay. This can disproportionately hurt returns, particularly where the allocator’s continued existence is dependent on meeting a quota.

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