Regulatory restrictions could prevent workplace pension schemes from directing more capital towards private companies and infrastructure, despite government pressure to increase investment in the UK economy.
Aegon UK has warned that rules governing charges and permitted pension assets remain poorly aligned with plans to expand exposure to private markets.
Part of the concern centres on the 0.75% annual charge cap applied to default defined contribution pension funds. Private equity, venture capital, infrastructure, and other unlisted investments frequently use performance fees or carried interest structures that are more expensive and less predictable than conventional listed funds.
Although regulatory changes have allowed some performance fees to be treated more flexibly, providers and trustees must still decide whether additional costs can be justified by expected returns and whether the structure creates unacceptable complexity for members.
Permitted link rules present a separate obstacle by determining which assets and structures insurers can offer through unit linked funds. Many established private market vehicles do not fit easily within those requirements because they have limited liquidity, long investment periods, or complex ownership arrangements.
The government wants pension schemes to provide more long term capital for growing companies, housing, infrastructure, clean energy, and regional development. Through the Mansion House programme, major providers have been encouraged to allocate part of their default funds to unlisted investments.
Aegon has already begun expanding private market access within its workplace pension range, including its LifePath default strategy. The business oversees retirement savings for hundreds of thousands of members whose combined contributions could provide a substantial source of patient capital.
Introducing less liquid assets without weakening member protection remains difficult. Workplace pension funds need daily administration, accurate valuations, fair treatment of members entering and leaving, and sufficient liquid holdings to meet transfers and retirement withdrawals.
Private assets are valued less frequently than listed securities and may take years to sell. Their performance can also depend heavily on a manager’s ability to select companies, influence strategy, and exit investments at an appropriate point in the economic cycle.
Long investment horizons can allow pension schemes to tolerate periods of illiquidity, while a diversified allocation may improve returns and support assets that cannot be financed efficiently through public markets. The difficulty lies in distinguishing responsible long term investment from excessive cost, weak governance, or inappropriate risk.
Rules designed to protect members from opaque charges may consequently restrict access to assets that could improve retirement outcomes. Removing those rules too readily, however, could expose savers to higher fees without any assurance of superior performance.
Trustees are already demanding stronger evidence behind investment claims. A recent analysis of pension governance and ESG evidence found growing scrutiny of data, stewardship, and measurable outcomes. Private market allocations require comparable discipline around valuation, fees, liquidity, and member benefit.
Government pressure to invest domestically creates an additional tension. Trustees and providers must act in members’ interests, meaning allocations cannot be made solely to advance industrial policy. UK assets have to compete on price, risk, expected return, and their contribution to the wider portfolio.
Directing or mandating domestic investment could create conflicts where schemes judge that overseas opportunities offer better value. Conversely, regulatory obstacles that make UK private assets unnecessarily difficult to access may prevent commercially attractive investment without improving protection.
Scale will influence which providers can participate. Large pension groups can build specialist teams, negotiate lower fees, and spread due diligence costs across substantial portfolios. Smaller schemes may lack the expertise or resources required to assess complex funds and create diversified allocations.
The government’s pension consolidation plans are partly intended to address that limitation by creating larger pools of capital. Greater scale could improve purchasing power and investment capability, although it may also reduce competition and concentrate influence among fewer providers.
Companies seeking growth finance should not expect pension reform to produce an immediate surge of capital. Providers need suitable investment vehicles, robust governance, valuation methods, liquidity arrangements, and evidence that additional costs are justified.
Infrastructure developers face similar requirements. Pension money can support long duration assets with dependable revenues, but planning delays, construction risk, regulatory uncertainty, and policy changes can make projects difficult to price and finance.
Private market managers will also face pressure to improve transparency. Pension providers require clearer information about underlying assets, fees, performance, risk, and the timing of cash flows than some traditional fund structures have supplied.
The debate therefore extends well beyond the charge cap. Pension regulation, industrial policy, asset management structures, and trustee governance must work together if long term capital is to be deployed without compromising savers.
Aegon’s warning suggests that political ambition currently exceeds the capacity of the operating framework. Unless the remaining restrictions are resolved, private market allocations may grow more slowly than ministers expect, limiting both the finance available to UK projects and the diversification offered to pension members.
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