Jessica BirdThe Pensions Regulator (TPR) has revealed that nearly 90% of defined contribution (DC) pension savers are enrolled in schemes investing in at least one productive asset class, such as infrastructure, private equity, or renewable energy.
This finding underscored the growing role of diverse investments in enhancing retirement outcomes and contributing to the broader UK economy.
According to TPR’s latest survey, 57% of large DC schemes and 72% of DC master trusts incorporate productive assets into their portfolios.
In the defined benefit (DB) sector, 45% of schemes reported similar investments.
However, the data also highlighted a knowledge gap among smaller schemes, with 57% of small and 70% of micro schemes uncertain about their holdings in these asset classes.
Nausicaa Delfas, chief executive at TPR, said: “We believe sound investment in diverse assets could improve outcomes for savers and generate growth for the UK economy.
“The two do not have to be in conflict.”
The regulator’s research indicated that larger DB and DC schemes exhibited greater awareness and engagement with governance practices compared to their smaller counterparts.
This heightened engagement positions them to make more informed decisions regarding diversified investments, cybersecurity, and environmental, social, and governance (ESG) factors.
Conversely, smaller schemes may be at risk of not meeting TPR’s expectations concerning investment governance and overall management.
In response to these findings, TPR is intensifying efforts to address governance deficiencies in smaller schemes. Initiatives include assessing compliance with the legal duty to perform detailed Value for Members assessments – a process that has led nearly 20% of engaged schemes to conclude they do not offer sufficient value, resulting in their winding up and the issuance of fines for non-compliance.
Additionally, TPR is collaborating with the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA) to develop a Value for Money framework and adopting a more proactive supervisory approach to enhance trusteeship quality, with a stronger emphasis on delivering value.
TPR also outlined the importance of investment diversification in pension schemes, noting that a varied asset portfolio can mitigate risk by reducing reliance on the performance of a single asset class.
Diversification aims to achieve more stable and predictable returns over time, balancing growth assets with more stable, lower-risk investments.
TPR encourages trustees to collaborate with investment advisers to craft well-diversified strategies that align with their schemes’ risk tolerance and long-term objectives.
