Reform to defined contribution (DC) schemes' investment strategies to support greater scale, alongside a stronger focus on long-term value, could boost pension pots at retirement by between 4 and 20 per cent, according to modelling by Standard Life and WPI Economics

The researchers modelled three representative saver profiles, finding that early-career savers could have up to £49,000 more at retirement, while an early-career saver taking a break could have up to £30,000 more and a mid-career saver up to £17,000 more.

The highest uplift modelled was for an early-career saver who took a career break and later returned to work part-time.

The report, From Scale to Impact: A Blueprint for the Future DC Pensions Market, examined how the UK DC pensions market could evolve over the next decade amid consolidation, the value for money framework and wider pension reforms.

While debates on retirement adequacy often focus on contribution levels, the research suggested investment strategy could also have a significant impact, with modelling showing pension pots could be 4 to 20 per cent larger at retirement under a more diversified approach with greater exposure to private markets.

The proposed investment approach assumed that 15 to 30 per cent of growth-phase assets were invested in private markets, and the results were compared with what would be expected under current DC investment practices, where 1.7 per cent of assets invested during the growth phase were allocated to private markets.

The report suggested the workplace DC market could be dominated by 10 to 15 large schemes by 2035, arguing that greater scale would support more diversified investment strategies and increased exposure to private markets.

It also said a shift from focusing on costs to assessing overall value could help schemes deliver stronger long-term risk-adjusted returns for savers.

Standard Life product director, Jenny Holt, said that while increasing participation and contribution levels remained important, the industry “must also consider how effectively those savings are invested over the long-term”.

“The reforms under way are expected to create a smaller number of larger pension schemes with greater ability to invest across a wider range of assets. Combined with a stronger focus on long-term value, this could help improve retirement outcomes for millions of savers,” she said.

“The debate about retirement adequacy should not only be about how much people save. It should also consider how effectively those savings work for people throughout their careers.”

In addition, WPI Economics director of policy, Joe Ahern, noted “there is no single solution” to the UK’s retirement adequacy challenge.

“Improving investment outcomes will not remove the need for higher pension saving, but our analysis suggests it could make a meaningful contribution,” he said.

“Greater diversification and access to a broader range of investment opportunities can benefit savers over the long term. As the pensions market evolves, reforms must remain focused on delivering higher net value for members.”

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