The UK pension system is undergoing a major transformation. In recent years, there has been a growing focus on investing pension savings in higher-growth, less liquid assets, such as private companies.
This shift in strategy is being driven by a number of factors, including the need to generate higher returns for pensioners, the desire to support the UK economy, and the growing popularity of defined contribution (DC) pensions.
The Mansion House Compact members are Aviva, Scottish Widows, L&G, Aegon, Phoenix, Nest, Smart Pension, M&G and Mercer.
This commitment pledges to direct 5% of default funds, used for DC pension savers, towards unlisted equities by 2030. This move is projected to unlock up to £50 billion of investment in high-growth companies over the next few years.
The changes in UK pension investment strategy have a number of implications for pension savers.
First, it is important to understand the risks and benefits of investing in higher-growth, less liquid assets. These assets can offer the potential for higher returns, but they also carry a greater risk of loss.
Risk of loss: Unlisted equities are more risky than listed equities, as they are more likely to go down in value. This is because they are not as well-regulated as listed equities, and they are not as transparent. This means that it can be more difficult to assess the risk of investing in unlisted equities.
Second, pension savers need to review their current pension fund allocation to ensure that it aligns with their personal risk tolerance and retirement goals.
If your savings are currently invested in a default fund, it’s crucial to consider whether you are comfortable with the added exposure to private companies and unlisted equities. If not, it may be worth exploring other funds provided by your pension scheme.
The landscape of pensions and investments can often be complex and intimidating.
However, by being informed and making considered decisions, you can navigate these changes and ensure your retirement savings are on track for success.
Remember, financial planning is not a one-size-fits-all approach, and the best strategy is one that is tailored to your unique situation and financial aspirations.
Stay informed, stay engaged, and ensure your retirement savings are positioned for success in this changing landscape.
Here are some practical tips for pension savers
The changes in UK pension investment strategy are significant, and they have the potential to have a major impact on the retirement savings of millions of people. By being informed and making considered decisions, pension savers can navigate these changes and ensure their retirement savings are on track for success.
What is meant by ‘unlisted equities’?
Unlisted equities are shares in companies that are not listed on a public exchange like the London Stock Exchange. These are usually shares in smaller, private companies and start-ups, and are considered less liquid and more risky compared to shares in larger, publicly traded companies.
How does this change in pension investment strategy impact me as a pension saver?
If your savings are currently invested in a default fund affected by this commitment, there will be increased exposure to private companies and unlisted equities. While this may lead to potentially higher returns, it also comes with a greater risk of loss. Therefore, it’s crucial that you review your current pension fund allocation and consider if you’re comfortable with this level of risk. If not, you may want to explore other funds provided by your pension scheme.
Are all pension funds in the UK affected by these changes?
No, not all pension funds are affected. The Mansion House Compact was signed by nine of the UK’s largest pension providers, so it primarily affects default funds managed by these providers. If you’re unsure whether your pension fund is affected, you should contact your pension provider for more information.
Where can I find more information or seek advice on my pension savings? You can start by contacting your pension provider to discuss your current pension fund allocation and how these changes may affect your savings. For more personalised advice, you may want to consider speaking with a financial advisor who can provide guidance based on your individual circumstances and financial goals.
