From Morningstar: 2025-06-09 12:23:00

The UK government aims to increase retirement fund exposure to private assets to boost returns, but critics warn it may lead to higher fees for asset managers and increased risk for pension savers in default options. The Pension Schemes Bill seeks to implement the Mansion House Accord, committing pension providers to investing 10% of assets in private markets by 2030.

Morningstar experts believe expanding retirement funds will create larger, more efficient pension funds, reducing costs and increasing returns for workers. However, the move also presents a commercial opportunity for fund companies to charge higher fees for expertise in complex investing landscapes.

The introduction of Long-Term Asset Funds (LTAFs) in 2021 offers easier access to illiquid assets like private equity and venture capital. The LTAF market is currently small, with around 30 strategies available in the UK, dominated by large asset managers like Schroders and BlackRock. LTAFs aim to bridge the gap between liquid and long-term private structures in pension investing.

LTAFs come in various forms, investing across private credit, equity, real assets, and specialist credit. Future Growth Capital’s Global Ex-UK LTAF, launched in 2025, offers a diversified approach with investments in private equity, infrastructure, and real estate debt. LTAFs provide a longer redemption period than liquid funds, catering to pension investors seeking exposure to private markets.

The UK’s defined-contribution pension market sees LTAFs as a flexible access point to private markets, appealing to pension providers and wealth investors. The government believes LTAFs offer scalability and flexibility, benefiting pension savers and the economy. The move toward private assets aims to boost retirement savings and increase investment options for pension holders.

LTAFs present a business opportunity for asset managers amid fee pressures from passive investing success. New entrants and private asset firms are exploring partnerships with traditional asset managers to tap into the growing LTAF market. The commercial aspect of LTAFs offers providers a chance to charge higher fees and attract a broader investor base.

Critics question whether LTAFs are the solution to UK pension growth, suggesting they may not address the root issues. Concerns remain about the complexity and risk associated with private asset investing through LTAFs. The debate continues as the UK government pushes for pension reforms to maximize returns for savers and drive economic growth. The focus is on how much the end investor saves under auto-enrollment. The minimum annual income needed for a “minimum” living standard for two people is £21,600, while a “comfortable” standard requires £60,000. Higher contribution rates should be a policy priority to address this disparity.

Auto-enrollment pensions require anyone aged 22 and above earning £10,000 a year to be enrolled. The minimum contribution is 8% of qualifying earnings split between 5% employee and 3% employer contributions. A person could save up to £3,533.40 annually, totaling £155,469 over 44 years.

The Pension Schemes Bill aims to bring significant pension reforms. The Association of British Insurers emphasizes the need to increase pension contributions for adequate retirement income. Fund managers see a commercial opportunity, but individuals must carefully plan their retirement to maximize savings.



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