Key Takeaways
- • Standard Life and WPI Economics project private market allocations in UK defined contribution (DC) default funds could rise from around 2 per cent to between 15 and 30 per cent by 2035.
- • Private credit could make up 20 to 40 per cent of those private market allocations under the report's projected scenario, with infrastructure and real assets also at 20 to 40 per cent.
- • Between 10 and 15 larger UK workplace pension schemes, each managing more than £50bn, could dominate the DC market by 2035.
- • Standard Life estimates £40bn to £200bn of DC pension assets could be invested in UK private markets by 2035, versus £2bn to £3bn held by master trusts today.
Summary
Private market allocations in UK defined contribution default funds could rise to as much as 30 per cent by 2035, with private credit expected to play an increasingly important role, according to new research from Standard Life and WPI Economics. The report, titled "From Scale to Impact: A Blueprint for the Future DC Pensions Market," finds that allocations could increase from around 2 per cent today to between 15 and 30 per cent during the growth phase of retirement saving over the next decade.
The report argues that future default funds could spread exposure across a broader mix of private assets rather than concentrating in a single asset class. Under its projected scenario, private credit could account for 20 to 40 per cent of private market allocations, while infrastructure and real assets could also represent 20 to 40 per cent. The authors suggest private credit could help schemes manage liquidity and downside risk, while infrastructure could provide long-term, inflation-linked cash flows and diversification. Private equity and venture capital are expected to remain important sources of long-term growth.
The research also projects further consolidation of the UK workplace DC market, with 10 to 15 larger schemes, each managing more than £50bn, potentially dominating the sector by 2035. Standard Life and WPI Economics argue that greater scale would allow schemes to build specialist investment expertise and access private market opportunities already common among large pension funds in Australia and Canada. According to the report, Australian superannuation funds currently allocate around 17 per cent of assets to private markets.
The report also suggests UK schemes could retain a significant domestic bias, with 30 to 50 per cent of private market investments allocated to UK opportunities, compared with around 5 to 10 per cent of listed equity investments. On this basis, Standard Life estimates that £40bn to £200bn of DC pension assets could be invested in UK private markets by 2035, against an estimated £2bn to £3bn held by master trusts today.
Joe Ahern, director of policy at WPI Economics, said: "Scale changes what pension schemes can invest in and how they invest. Larger schemes are better positioned to access a wider range of opportunities, build specialist expertise and construct more diversified portfolios across different private market asset classes."
The report argues that future default funds could spread exposure across a broader mix of private assets rather than concentrating in a single asset class. Under its projected scenario, private credit could account for 20 to 40 per cent of private market allocations, while infrastructure and real assets could also represent 20 to 40 per cent. The authors suggest private credit could help schemes manage liquidity and downside risk, while infrastructure could provide long-term, inflation-linked cash flows and diversification. Private equity and venture capital are expected to remain important sources of long-term growth.
The research also projects further consolidation of the UK workplace DC market, with 10 to 15 larger schemes, each managing more than £50bn, potentially dominating the sector by 2035. Standard Life and WPI Economics argue that greater scale would allow schemes to build specialist investment expertise and access private market opportunities already common among large pension funds in Australia and Canada. According to the report, Australian superannuation funds currently allocate around 17 per cent of assets to private markets.
The report also suggests UK schemes could retain a significant domestic bias, with 30 to 50 per cent of private market investments allocated to UK opportunities, compared with around 5 to 10 per cent of listed equity investments. On this basis, Standard Life estimates that £40bn to £200bn of DC pension assets could be invested in UK private markets by 2035, against an estimated £2bn to £3bn held by master trusts today.
Joe Ahern, director of policy at WPI Economics, said: "Scale changes what pension schemes can invest in and how they invest. Larger schemes are better positioned to access a wider range of opportunities, build specialist expertise and construct more diversified portfolios across different private market asset classes."
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