An analysis of the $3,650bn private retirement system in the UK and how policy and structural characteristics affect sustainability.

System overview

In a dynamic regulatory environment, the UK funded pension market is undergoing significant change, with defined contribution schemes growing much faster (in terms of membership) than their defined benefit counterparts. In terms of assets, defined benefit (DB) schemes still dominate, with private sector occupational schemes holding GBP1,615 billion in assets and public sector schemes holding GBP341 billion in March 2019. Occupational defined contribution (DC) schemes, by contrast, hold assets worth GBP 350 billion as of July 2019 (Table 1). This figure comprises GBP 170 billion managed under a trust structure (December 2019) and GBP180 billion managed under contract arrangements (July 2019).

Since the introduction of mandatory automatic enrolment in 2012, private sector occupational pensions have shifted conclusively from DB to DC in terms of membership.1 Over 10 million workers were automatically enrolled into a workplace DC scheme between January 2013 and June 2019. DC pensions may be trust-based or contractbased (contract-based schemes have typically offered more investment choice to members), but regulation is converging. It is important to pay attention to the master trust sector, which is likely in future to capture the bulk of growth in DC membership.

Responsible investment

The UK has a supportive regulatory environment for responsible investing by pension funds, despite pressure on trustee agendas caused by regulation and market and demographic pressures. There is a coordinated effort by regulators to encourage alignment of pension investments with the goals of the Paris Agreement.

As in the US, the pensions industry appears to be relatively fragmented, but assets and influence are in fact concentrated with a small number of dominant pension plans and service providers.

Table 1: UK market structure

 Private sector occupationalLocal government occupationalNon-workplace pensions
  DB DC Trust Of which, Master Trust  DC contract    
Total assets (GBP billion)* 1,615 170 (all schemes) 71 (excluding microschemes) 38.5 180 341 470
PRI signatories as % total assets Circa 18%  5 out of 38 master trusts are signatories, a further 13 are part of a larger organisation that is a signatory 9 of the 12 GPPs with GCs/autoenrolment platform are signatories 66% n/a
Sector concentration 5,500 schemes, top 20 circa 30% of assets 2,000 schemes (excludes micro), top 150 hold 83% of assets Top 5 circa 65% of assets 2,140 schemes

12 GPPs with IGCs

4 GPPs have circa 40% of assets
England & Wales 8 pools 25 main platforms Share of top 4 firms in individual personal pension market
Service provider concentration Top 3 asset managers > 70% of institutional pension assets
Top 2 investment consultants > 40% of market
Top 5 fiduciary managers > 70% of market
Regulator  TPR  TPR  TPR  FCA Ministry/Directorate. TPR for governance and administration FCA


Governance structures Trustee Trustee Trustee Independent Governance Committee Local administering authorities/pension boards  
Asset allocation Equity 24% Bonds 63% Property 5% Hedge funds 7% Other 5% Cash -4% 10 years to retirement Equity 42% DGF 47% Managed/ balanced 4% Bonds 6% Other 1% 10 years to retirement Equity 51% DGF 9% Managed/ balanced 22% Bonds 14% Other 4% 10 years to retirement Equity 37% DGF 22% Managed/ balanced 25% Bonds 12% Other 4% Equity 62% Fixed income 22% Cash 1% Property 8% Other 7%  
Key barriers to system sustainability

No regulatory barriers
Smaller schemes lack capability/resource

  Lack of participant engagement, focus on simplicity
Focus on solvency, de-risking Focus on cost especially in default Implementation e.g. liquidity, platforms, passive strategies  

* hybrid assets allocated to DB or DC as appropriate