The British government has been urged to take action to create more investible opportunities in the UK, amid concerns that the UK has "considerable need" of greater investment to achieve the government’s goals on growth and the transition to net zero.

In its latest report, the Pensions and Lifetime Savings Association (PLSA) outlined its key recommendations to create the necessary investment conditions for pension schemes to allocate a greater portion of their assets to "promising" UK growth areas.

The report, Pensions & Growth: Creating a Pipeline of Investable UK Opportunities, warned that there is a funding gap amounting to "tens of billions of pounds" across the four key areas that most require investment.

For instance, the report noted that the UK Climate Change Committee’s sixth carbon budget estimated that reaching net zero will cost around £50bn a year, with further private investment also needed to support infrastructure, social and community growth funds, and life sciences and AI development.

However, the PLSA acknowledged that, since early 2023, there has been considerable debate about whether and how pension funds can be supported to allocate more to emerging, but higher risk, sectors that could drive UK economic growth.

"Crucially", the association acknowledged that pensions funds have a fiduciary duty and will only invest where the risk-return characteristics of potential investments meet the needs of their members.

Despite this, it argued that with government, pension funds, investment managers, investee companies and consultants all playing their part, there is "substantial" potential to open the pipeline of assets to attract the investment of pension funds to support UK growth.

Given this, the report oultined a number of key recommendations designed to help create more investable opportunities in the UK and close the funding gap.

In particular, PLSA called on the government to provide policy and regulatory certainty to improve the UK’s appeal versus investment opportunities globally.

This includes developing a long-term strategy for investment and growth, outlining the government’s priority investment sectors, its approach to blended finance and how it will work with the pensions industry.

It also suggested that the government should offer targeted fiscal incentives to make UK growth assets more attractive than competing assets from other countries, arguing that enhancing the tax treatment of domestic investments, as they do in France and Australia, merits further exploration.

The PLSA argued that the government should also look to expand the area of focus beyond private equity and venture capital to encompass infrastructure, alternative assets and a variety of funding models.

Alongside this, it encouraged the government to take control in bringing key industry groups together to develop solutions to growth challenges, as well as taking the lead and collaborating on AI and net zero at international scale.

The PLSA also stressed the need for planning reform to enable crucial energy, infrastructure, social housing and later life care development.

However, the PLSA argued that action is also needed from the industry, urging pension scheme trustees to develop investment strategies that consider how to allocate to private market assets appropriately to meet the needs of the scheme and future liabilities.

The association also reminded trustees that training may be required to ensure there is an appropriate level of knowledge and understanding of social and climate issues and how to integrate these into investment decisions.

It also stressed the need for trustees to understand the risks involved in different types of investments and how to effectively diversify their portfolio, and to consider what blended finance structures would make sectors more investable.

In addition to this, the PLSA encouraged trustees to ask advisers and consultants to further consider growth assets in investment strategies put forward for defined benefit (DB) and defined contribution (DC) schemes, and consider any gaps in service provider expertise.

This work could result in "significant tangible real-world benefits for society", as the PLSA estimated that investment in wind, solar and nuclear power would support decarbonisation and lead to estimated operational savings of £50bn by 2050, while an acceleration in AI adoption and digital technology could add £520bn to the UK economy by 2030.

PLSA director of policy and advocacy, Nigel Peaple, said: “The UK has considerable need of greater investment to achieve the government’s goals on growth and the transition to net zero.

“Pension funds have an important part to play in achieving greater investment in the UK where this is consistent with achieving the right returns for pension savers.

"The PLSA has highlighted these issues in our conferences, supports the Mansion House Compact, provided input to the National Wealth Fund, and last year identified the policy and regulatory changes needed to achieve this goal.

“Our new report looks at how to create more investible opportunities in the UK by identifying the pension fund and government actions needed and calls on all parties to work together to achieve these goals.”

This article was originally published on our sister title, Pensions Age.

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