Publications
Redistributing the Risk Burden
Collectivising Risk for More Productive Investment
London 2nd September 2026 - Investment systems think-tank, New Capital Consensus (“NCC”), has found that the systematic transfer of risk from institutions to individuals has damaged productive investment in the UK and left savers to bear the majority of the risk burden with little to no support.
In a new report entitled ‘Redistributing the Risk Burden’, NCC highlights that a series of self-reinforcing problems have combined to strip products away from savers which allow the collectivisation of risk and over-serve the wealthiest of pension pots. The knock-on effect of the erosion of risk-pooling over the last 25 years is that the long-term investment capability of institutions has been replaced by short-term, risk-averse and hyper liquidity-focused investment which seeks to protect ‘savings pots’ rather than provide an income for retirement.
According to the report, a ‘risk transfer’ has occurred which has unwound a system in which institutions bore long-term investment risk on behalf of savers. With-profits, deposit-administration and other guarantee-rich products have disappeared; Defined Benefit (DB) pensions have closed and de-risked through Liability-Driven Investment (LDI); and risk-pooling has been replaced by Defined Contribution (DC) pensions as the dominant architecture. This has led to a transfer of what the report calls the ‘risk-burden’ to the individual without the product set to match the needs to the majority of UK savers.
Compared with the US, Canada, large parts of Asia and most of continental Europe, the UK is the outlier. Contracts providing some form of underpinning to protect individuals remain ubiquitous in the US, Canada, many Asian markets and continental Europe, but in the UK, the DC saver carries the investment decision, longevity risk and residual risk - typically without advice.
However, the report recommends that supporting innovative investment vehicles that pool risk and spread the potential benefits and downsides of long-term investment could begin to turn the tide on this transfer and enable more ‘appropriate’ risk-bearing through collectivisation.
Instruments like Collective Defined Contribution (CDC) schemes - balancing investment and longevity challenges across all members - should be championed. Similarly, in the DB world, pension Superfunds which collectivise many small employer-sponsored funds into larger, investor-backed funds with a dedicated capital buffer should be encouraged.
The report also points out the importance of viewing risk-bearing as a valuable activity. It calls on the government, regulators and industry to alter the country’s risk mindset to align with its productive ambitions. According to New Capital Consensus, the system currently conflates long-term and short-term risk, pushes investors towards highly liquid, secondary trading, and strands massive capital pools in low-return government debt at the expense of illiquid but higher-value investments which could create growth and provide better returns for savers.
Addressing a culture obsessed with eliminating risk rather than managing it effectively is central to the long-term redesign of the system, according to NCC. Mark-to-market accounting regulations and daily liquidity requirements form part of the reinforcing measures which ‘shred’ long-term, patient capital inherent in pension funds and convert them into thousands of short-term bets on volatility and market movements.
Dan Hedley, New Capital Consensus’ Policy Director and author of the report, said: “Over the last 25 years the product set available to savers has been systematically stripped of its collective risk-bearing capabilities. The result is that the burden of risk has been transferred almost entirely from institutions to individuals, especially in the DC world.
When individuals are bearing risk alone, their appetite is naturally more risk-averse and this damages their potential for greater returns as well as starving the UK of long-term, illiquid investment capital. With DC pensions essentially being treated as savings pots rather than an income through retirement, there is risk inherent in doing nothing when savers realise their pots aren’t sufficient for a comfortable existence in later-life.
What we have to do is improve the vehicles available to savers which can pool risk with others and share both the risks and rewards.
Ashok Gupta, Director of NCC, said: “Risk-bearing is a valuable activity. Like energy, it is needed to drive all productive capacity and without it we grind to a halt as a functioning economy. Too much risk, or energy, concentrated in a single place can create innate danger, and we see this with herding and sectoral risks which emerged during the LDI crisis and are beginning to emerge in US tech stocks and AI-heavy IPOs.
Whilst we cannot, and should not, attempt to remove risk from the investment system, we can manage its multiple incarnations with appropriate strategies, and shelter those who would struggle to bear it through intelligently built investment vehicles.
As this redesign report explains, our ability to ‘risk pool’ and share collective risk and reward across our investment system has dramatically reduced in recent decades; even more concerning we have transferred much of that risk-bearing ability from institutions, with risk-management skills, to individuals, with no or limited risk-management skills.”
