'Premature' de-risking of defined benefit (DB) pension schemes may be depriving the UK economy of over 20 years of productive investment, research from New Capital Consensus (NCC) has suggested.

The report, The Trillion Pound Question, found that schemes planning for buyouts typically derisk when members are in their 50s, compared to "more naturally" when members are in their 70s.

It indicated that this results in at least 20 years of investment capital that could be directed to support British businesses instead “parked” in low risk, low return assets such as gilts and liability-driven investment (LDI), driven by regulatory pressures and accounting standards.

Given this, NCC founding director, Ashok Gupta, called on the government to “accelerate” the establishment of DB superfunds and for them to be regulated as pension funds, not as insurance products under Solvency UK.

Gupta suggested this would enable greater investment flexibility and avoid the “restrictive” capital rules imposed on insurers.

He emphasised that insurers should be allowed to set up superfunds outside their Solvency UK ringfences, enabling them to leverage their expertise without compromising prudential standards.

Additionally, the research highlighted “major” shortcomings in how the health of the UK pension system is monitored.

In particular, it highlighted disparities between official datasets from The Pensions Regulator (TPR) and the Office for National Statistics (ONS), as TPR’s solvency estimate was 127 per cent, while the solvency estimate derived from the ONS was 100 per cent.

The report suggested that data quality was “extremely poor”, arguing that this is not a sign of an effective and functioning system.

“The UK economy cannot afford for DB capital to be locked into regulatory straitjackets or prematurely removed from productive use,” Gupta said.

He argued that the system's structure must be “urgently revisited” and use the forthcoming Pension Schemes Bill to unlock growth through smarter consolidation.

“Without accurate, consistent pension data, government cannot identify where risk lies, nor where opportunities for reform and investment exist,” he said.

“That’s why disparities in TPR and ONS data also need to be addressed.”

The report also found that DB remains the largest pool of pension savings with “significant” declines in asset values since 2021 from a peak of £1,834bn in Q4 2021 to £1,181bn in Q1 2024.

NCC primarily credited this change to the LDI crisis and re-pricing of asset values in an economic environment with higher inflation and interest rates.

The research also revealed that LDI has resulted in a “real and permanent” loss of capital from the balance sheets of private sector DB pensions.

Additionally, despite the time that has passed since the crisis, there is no source of published data or regulatory exercise to show the extent to which there have been losses and where those losses have occurred.

The report found that central government schemes, including the Local Government Pension Schemes (LGPS), manage assets of £547bn, including £391.5bn in LGPS schemes in England and Wales, as of Q1 2024.

The research showed that these schemes have experienced stable growth, more exposure to risk assets and less exposure to lower-risk fixed-income assets.

Meanwhile, occupational defined contribution (DC) pensions comprise a small but growing pool of capital £288bn, driven by auto-enrolment policies.

NCC also revealed that DC master trusts have experienced “significant” growth to approximately £193bn as of Q2 2024, due to increased participation, again driven by auto-enrolment.

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