UK pension funds urged to unlock billions for infrastructure investment

Britain’s largest corporations are being encouraged to support a new initiative proposed by Alastair King, the Lord Mayor of the City of London, aimed at channelling pensions into economically impactful projects. King, in a leadership role at the City of London Corporation, has written to chief executives of FTSE 100 companies urging them to evaluate the “value for money” of their pension schemes and consider reallocating investments to infrastructure and London’s junior stock market, AIM.

This proposal follows the Mansion House Accord, signed by 17 major pension providers last month, which pledged to allocate 10 per cent of pension assets to private markets by 2030, with half of this directed to UK-based projects. The lord mayor hopes to secure widespread corporate support before the next Mansion House speech, where Rachel Reeves, the Shadow Chancellor, is expected to outline the City’s future investment strategy.

The focus of this initiative is to encourage pension funds to move away from cheaper, passive index-tracking funds and instead consider active investment strategies that promote domestic growth. Proponents argue this realignment could not only provide better retirement returns for workers but also stimulate the national economy through increased investment in infrastructure and other UK-focused opportunities.

The government has also introduced legislation aimed at reforming the pension industry, including measures to increase investments in infrastructure projects. This new framework could unlock billions in surplus funds held by private sector defined-benefit schemes, which are currently enjoying their strongest financial position in decades. Ministers believe these reforms will reduce barriers to growth and ensure businesses, as well as individuals, benefit from these dormant assets.

However, concerns have been raised about the potential risks associated with these changes. The Pension Security Alliance, a coalition of businesses, campaigners, and pensions professionals, warned that allowing the removal of cash surpluses from defined-benefit schemes could threaten their ability to meet future obligations. They highlighted government assessments suggesting that some schemes may struggle to provide full retirement payouts should the proposals move forward.

Despite these warnings, officials remain optimistic about the long-term benefits of unlocking pension wealth for national investment. A government spokesperson emphasised that the surplus resources represent opportunities to boost the economy and deliver improved outcomes for both businesses and workers.