The Urgent Need for UK Pensions Consolidation

The UK's highly fragmented pension system is directly responsible for the broader economy missing out on desperately needed productive capital. As outlined in NCC's quantitative research, the occupational pension system holds £2.2 trillion, with private sector Defined Benefit (DB) schemes dominating at £1.2 trillion. However, this massive pool of private DB capital is fundamentally broken and incapable of delivering appropriate investments for the UK economy due to soaring systemic risks. Driven by perverse regulation and accounting standards, the LDI disaster obliterated approximately £650 billion—a shocking one-third of total DB assets and 10% of the entire UK investment capital pool.

The core issue destroying capital potential is premature derisking. The fragmented DB schemes operate as a giant herd, aggressively shifting assets into low-yield gilts and LDI strategies decades earlier than necessary.

  • Schemes routinely begin the derisking process when members reach 50 years of age, rather than a more rational target of 70 to 75.

  • This premature action results in 20 to 25 years of lost productive investment; capital that should be creating jobs and building businesses is instead parked in supposedly "safe" assets that proved to be highly destructive.

  • Furthermore, relying solely on life insurance buyouts is a flawed strategy; transferring the entire DB system to insurers would drastically amplify systemic risk because demand far outstrips the supply of assets that meet strict insurance regulatory restrictions.

To solve this crisis, the government must act decisively on intelligent consolidation. The primary solution requires the establishment of Superfunds that operate strictly under pension regulation rather than restrictive insurance rules. Superfunds desperately need the investment freedoms that are currently unavailable to existing fragmented DB schemes or heavily regulated insurers. Insurers should absolutely be permitted to establish these Superfunds outside of their Solvency UK ringfences, as they possess the requisite skills and capital; blocking them would only obstruct necessary consolidation. With a Pension Schemes Bill imminent, the government has a very narrow window to enact these statutory changes and prevent another generation of low growth.

Download the full report