The LGPS provides a template for UK-focused investment – let’s build on it

Written By: Rachel Elwell
CEO
Border to Coast Pensions Partnership

Rachel Elwell looks at why mandating UK pension fund investment may sound like a quick fix, but it risks unintended consequences. Instead, fostering a competitive market, strong incentives, and investment freedom, have the potential to drive sustainable domestic growth

Not necessary, sledgehammer to crack a nut, and a dangerous precedent.1 This is how people in the pensions industry have talked about government plans to mandate UK investment for pension funds. To this list I would add that mandating simply prescribes a desired outcome rather than focusing on what is needed to achieve it. Not as catchy I’ll admit, but perhaps a better explanation of why it’s not really a policy, but instead, an ambition.

It’s worth saying that the LGPS shares this ambition for UK growth, and specifically investment in the UK. The UK regularly ranks globally as one of the top four most innovative countries, with world-leading universities and a talented and diverse workforce. For the nearly 7 million LGPS members who serve our local economies, working for over 18,000 local employers to provide services to local taxpayers, investing in the UK as part of a diversified investment portfolio makes sense. Indeed, more than a quarter of our existing investments are domestic in nature.

Yet just because we might not be mandated to increase this figure, as we’re way beyond the lower threshold (10% in private markets and half of that in the UK), there are certainly reasons for the LGPS to care about this proposal in the Pensions Scheme Bill.

For context, it’s helpful to first assess the state of pension fund investment to date. From “patient” capital to business, through investing in infrastructure to supporting the energy transition, the UK economy and wider society enjoys huge benefits from large pension funds using their scale and sophistication to invest for the long term. The LGPS proves that UK investment and fiduciary duty need not be considered mutually exclusive. Indeed, large asset-owning pension funds have proved quite the opposite to date.

Recent research by WPI Economics found large UK pension funds deliver significant economic benefits to the UK, providing vital patient capital to businesses, which is key for future economic growth. The benefits are profound. With £280 billion invested in the UK – including £12 billion from Border to Coast – the research found that these large-scale investors:

  • Generate an estimated £71.3 billion in total economic gross value added (GVA) through infrastructure and housing investment over a three-year timescale, generating 320,000 jobs in the year following this period.
  • Allocate £1 in £4 to private markets versus £1 in £9 for the rest of the sector, with around half of this in UK assets.
  • Invest £37.4 billion in UK corporate bonds, saving UK businesses £120 million in the cost of capital every year.

As an open defined benefit scheme with an investment horizon stretching across decades, not quarters, the LGPS has blazed a trail in UK investment. With that long-term horizon, LGPS schemes can confidently invest in illiquid and long-duration opportunities. With pooled scale and in-house expertise, the LGPS can access private markets more efficiently and at lower cost. With place-based governance, the LGPS has the insight and incentives to back regional growth, while remaining rooted in fiduciary duty.

We can learn from this success. The WPI research highlights the impact to date and also presents evidence of the positives of investment freedom. It finds that key to achieving the benefits of scale is the fact that UK pension funds efficiently allocate the assets under their management in line with their members’ best interests.

As the government continues to consider how best to stimulate greater domestic investment, this is important reading.

The instinct to direct more pension capital into UK opportunities is understandable, but mandating investment into the UK carries potential unintended consequences. These include the risk of inflating asset prices, reducing diversification, and weakening the fiduciary principles on which trust in the system is built.

In previous editions of LAPF Investments magazine, we highlighted Border to Coast’s own research into UK Productive Finance2, which underlined the need to keep the UK a competitive and attractive market for investment. Factors such as the tax environment, regulatory stability, long-term planning frameworks and the pipeline of investable UK opportunities all shape schemes’ ability to deploy capital at scale. The policy conversation must remain focused on these fundamentals, ensuring that incentives are aligned, market confidence is high, and investment options are genuinely compelling.

We are at a pivotal moment. The desire to unlock greater value from pension capital is well-placed. But mandating UK investment, rather than addressing the wider complex issues, could risk missing the point and doing more harm than good. Success lies in enabling the right structures, incentives and investment environment to take root. The LGPS shows what can be achieved when schemes are empowered to act with confidence, scale and purpose. The next phase of pensions reform should seek to build on that – not override them.

Click to read the full “The Scale of It” report.

 

1. Rob Yuille (The ABI), Amanda Blanc (Aviva) and Steve Webb (former Pensions Minister), respectively.
2. https://www.bordertocoast.org.uk/wp-content/uploads/2025/03/Border-to-Coast-Productive-Finance-Report_Unlocking-UK-Growth.pdf

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