British workers’ pension savings could help grow the economy – but there is not enough for them to invest in, former pensions minister Guy Opperman has warned.
Speaking at The Investing and Saving Alliance’s annual retirement conference on Tuesday, 17 June, Mr Opperman said ministers are right to want pension funds to back British infrastructure and industry, but right now there’s little worth investing in.
He said: “The Government definitely want to use pensions for growth. There’s no question whatsoever.” But he warned: “The serious issue is that there are limited products there.”
In her Mansion House speech in 2024, Rachel Reeves set out plans to force pension funds to combine into “megafunds”, saying they could unlock £80bn of investment in the UK.
By pooling the pots together, the Chancellor hopes it will give pension schemes the firepower to invest in a broader range of UK assets, including infrastructure – something some critics say is lacking.
The Mansion House Accord flagged that 17 of the largest workplace pension providers in the UK have expressed their intent to invest at least 10 per cent of their defined contribution (DC) funds in private markets by 2030, with 5 per cent of the total allocated to the UK.
By investing a portion of pension funds into UK private markets, average savers stand to benefit from potentially higher returns while boosting domestic jobs, infrastructure, and economic growth.
But Mr Opperman flagged that current investing options in the UK are limited or undesirable.
He said: “Are you going to invest in a water company right now? That’s not going to go very well. Are you going to invest in a train line? Not the greatest idea so far. We need those products.
“This Government has made it difficult to invest in water companies by regulating them and then threatening chief executives with personal prosecution.
“As always, water investment is very complicated, but the Universities Superannuation Scheme (USS) – one of the UK’s biggest pension funds – has lost a fortune. Now, pension funds are being very wary of investing in such places.
“On trains, the worry of nationalisation of all railways by Labour Government means pension funds are nervous of their investment being nationalised.”
Mr Opperman, who served in the role of pensions minister from 2017 to 2022, suggested nuclear energy as one possible future investment area, but warned it would take years to become viable.
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He says that investing in projects like nuclear energy could provide savers with stable, long-term returns while supporting the UK’s transition to clean, reliable power.
He used his own experience in Government to show how long reforms can take.
“One of the first things that landed on my desk in 2017 was the auto-enrolment review. And it took me only six years to get it into legislation, and it still isn’t in place now.
“So, when people say, ‘Oh, we’ve got to get contributions to 12 per cent,’ I’m going, I’d quite like the 2017 bit done first.”
UK markets a ‘sword of Damocles’ over pensions
UK pension funds have dramatically cut their domestic equity holdings over the past two decades.
In 2000, private-sector pension schemes typically had over 50 per cent of their portfolios invested in UK shares.
Today, DC schemes allocate just 8 per cent to UK-listed equities, private defined benefit (DB) schemes invest around 11 per cent, and local Government pension funds hold about 17 per cent.
The rest is increasingly directed toward global markets and bonds, as funds have focused on de-risking and diversification.
Jason Hollands, managing director of Evelyn Partners, said: “There are a variety of factors that have led to this decline, including Gordon Brown raiding the tax credits pension funds used to receive on UK dividends, de-risking of pension funds so they are heavily invested in bonds and a move towards global diversification.”
But he warned that UK markets are “crying out” for help as the number of companies listed on the London Stock Exchange continues to shrink.
He added: “It is possible that in due course the Government may lean on pension funds to invest more in the UK stock market as the pensions bill gives the Government reserve powers to introduce mandatory asset allocation.
“That’s a concern, as pension schemes have a fiduciary duty to deliver the best, risk-adjusted returns for their members.
“However, the threat of it hanging over them like Damocles Sword may mean they can be arm twisted to go further in backing UK assets.”
While the Government has proposed pooled pension funds and new British investment vehicles to help unlock capital for infrastructure projects, few of these ideas have yet been translated into real, investable products for schemes.
Mr Opperman acknowledged some progress, highlighting that ministers from both the Department for Work and Pensions (DWP) and the Treasury are now working more closely together.
But he warned that unless large-scale, viable opportunities are developed soon, schemes will continue to look elsewhere for returns – and the UK will miss out on a huge source of potential investment.
He said: “The key question for all of us is, looking at the bill, looking at the way ahead – is the situation glass half full, half empty, or in this particular case, three-quarters full? For me, it’s the mere quarter full.”
The DWP and the Treasury have been contacted for comment.
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