UK Investment System Update

Capital is growing, but allocation remains the constraint.

New research from investment systems think-tank, New Capital Consensus, in partnership with Leeds University Business School, has shown that the UK investment system now holds £6.1 trillion worth of investable capital as of late 2025 - growing by £457 billion from the same period in 2024.

This growth total represents nearly ten times the annual UK defence budget of £62 billion and represents a larger pool of capital than the education (£122bn), healthcare (£280bn) and policing budget (£19bn) combined.  

The increase in assets is concentrated primarily on the balance sheets of life insurance firms, ISAs, DC master-trusts and private DC pensions, with the life insurance sector alone representing £215 billion worth of capital growth. 

A shift is occurring in the location of this capital - away from closed DB pension schemes and onto the balance sheets of Life Insurers; in addition to the increase in private DC individual pension pots which are up by £72bn. This represents a structural challenge for the government in attempting to unlock productive domestic investment.

Ashok Gupta, Director of New Capital Consensus said: “The UK is not suffering from a lack of capital, far from it. The issue is instead the constraints placed on the system preventing it from allocating this capital to productive places - failing to support the virtuous circle of long-term investment into fledgling, innovative businesses that improve the places we retire in.

“Repatriating some of this pool of capital, especially from the US,  and incentivising long-term, illiquid investment in fledgling industry, sustainable energy and housing would solve a lot of the government’s headaches - and a move to rebalance the UK’s capital to work for country of the savers whose money it is would be a bold step for a new Prime Minister. ”

New Capital Consensus research points to the problem that, as capital flows towards the balance sheet of life insurers, regulatory and daily liquidity requirements prevent this naturally long-term capital from being invested in ways that benefit the UK. 

Gupta continued: “A life insurer is currently unable to invest in an innovative, efficient UK business that would benefit the country because it is hamstrung by regulatory requirements which prevent long-term, illiquid investment in favour of short-term trading in low-cost debt or securities traded on secondary markets.” 

The think-tank also noted that another fast-growing sector, private DC pension pots, are suffering from an ‘index-mindset’ that encourages herding towards passive indices which send more money to Apple Inc. (c.4.5%) than the entire UK economy (c.3.5%) on any given day. 

Professor Iain Clacher, of NCC and Leeds University, said: “The conversion of this capital stock into productive domestic investment that benefits the people whose savings this represents depends on the institutional plumbing of the investment system. The opportunity to increase productive investment now, quite clearly, sits in life companies, occupation DC pensions, DC master trusts and ISAs. The risk is that without a regulatory and cultural shift, these channels become ever larger without ever becoming productive for the UK or moving the dial on growth.”

Lead Researcher, Dr. Sania Wadud, said: “These updated figures sharpen our analysis of the investment-system as it reveals critical shifts in where assets are invested and by whom. 

“Life insurers especially now play an ever more important role in deciding where UK institutional money is invested, making the constraints of Solvency UK and mark-to-market accounting practices a limiting factor to effective long-term investment outcomes.

"From the rotation to DC that this analysis has uncovered, it is also clear we need to ensure savers’ money is invested appropriately in primary investment in the UK and beyond rather than mechanically flowing into big US-tech stocks, like, the SpaceX IPO, or sitting in low-cost, low-return areas because of constraints on how it can be allocated.”