Leading pension funds are missing out on billions of pounds by playing it safe with their investments, experts have warned, with many returning less than high street savings accounts. <\/p>\n
Measures in November\u2019s budget placed a huge emphasis on investing, including the planned drop in the cash Isa allowance for under-65s, as the chancellor tries to stimulate the British economy. <\/p>\n
But some defined benefit (DB, also known as final salary) pension funds, which guarantee their members a set inflation-linked income in retirement, are returning as little as 1.7 per cent a year on billions of pounds of investments. These schemes argue that they are \u201cfully funded\u201d, meaning that they have enough money to pay out on their promises to members. They say this means there is no need to raise high returns or take risks that could involve losing money.<\/p>\n
\u2022 We worked a lifetime for our pensions \u2014 then they were taken away<\/a><\/p>\n For example, the Universities Superannuation Scheme is the largest DB scheme in the UK, and also has members on newer defined contribution (DC) pensions, where what you get in retirement depends on how much you pay in and how your investments perform. The scheme overall has returned an average of 1.7 per cent a year over the past five years. It has \u00a373 billion in assets and at the end of March 2025 the DB part of the scheme had an estimated \u00a310 billion surplus. <\/p>\n The fund previously had a deficit, however, and savers and employers were asked to pay more. When it returned to a surplus at the start of 2024, member contributions were reduced from 9.8 per cent of pay to 6.1 per cent and employer contributions were reduced from 21.6 per cent to 14.5 per cent.<\/p>\n \u2022 Come clean over \u00a31.32trn public sector pension debt, Rachel Reeves told<\/a><\/p>\n The analytics firm Moneyfacts looked at the best easy-access rates available to savers with less than \u00a310,000 over the past five years and said that the average interest rate worked out at 3.23 per cent. For variable cash Isas, the average was 3.21 per cent and on one-year fixed savings accounts it was 3.72 per cent. <\/p>\n The Airways Pension Scheme, run by British Airways, also a final-salary scheme, has made average losses of 1.73 per cent a year over the previous five years, and average gains of 1.29 per cent a year over the past decade. <\/p>\n \u201cPart of the reason that the British economy has been so emasculated is because of an obsession with eliminating risk,\u201d said Michael Tory, the chairman of the financial advice firm Ondra. <\/p>\n \u201cThe system is entirely focused on risk elimination with no recognition that risk and return are inextricably linked in any capitalist system.\u201d<\/p>\n Playing it safe<\/p>\n The pensions advice firm Hymans Robertson said its research suggested that 67 per cent of DB scheme members thought the long-term security of their pensions was their priority.<\/p>\n Edmund Truell, a former venture capitalist who now runs a charitable foundation focusing on conservation, said that after the 2008 financial crisis the pension regulator pushed funds to \u201cde-risk. \u201cThey were told: You\u2019ve got to buy government bonds, you\u2019ve got to buy gilts because they are safe,\u201d he said.<\/p>\n But government bonds, he said, have returned around 1 per cent a year \u2014 a gain quickly wiped out by inflation.<\/p>\n Tory said that many British pension funds began selling their holdings in UK companies. \u201cI\u2019m convinced that the chronic shortage of long-term risk capital is one of the factors behind the UK\u2019s dismal productivity record. Some of the best companies this country has ever produced are now foreign-owned,\u201d he said, citing Deep Minds, which was bought by Google and is now at the heart of the tech giant\u2019s AI business.<\/p>\n \u2022 Visit Times Money for personal finance news, guides and expert columnists<\/a><\/p>\n What it means for the economy \u2014 and pensioners<\/p>\n DB schemes guarantee a set income for life in retirement, unlike DC schemes. They are not common in the private sector any more because they are so expensive to provide. Many have closed to new members but those that are still open have combined assets of about \u00a31.4 trillion. This failure to invest more than \u00a31 trillion in the UK economy is holding back UK economic growth, Tory said. <\/p>\n The chancellor has been pushing<\/a> for UK pension schemes to increase their exposure to private equity investing. In May some 17 firms signed up to the Mansion House accord, agreeing to invest at least 10 per cent of DC pension funds into private assets by 2030. And while this does not come without risk<\/a>, the same focus has not been applied to DB schemes. <\/p>\n Tory said: \u201cWe were once a country, an economy, that was adventurous, risk-seeking and where British-owned companies were innovating and raising capital for growth, and buying companies from other countries.\u201d<\/p>\n Truell said that in the case of the universities\u2019 scheme, better returns would have meant \u201cno need to increase everybody\u2019s contributions. It\u2019s an example of where decent investment returns go straight into the pockets of members.\u201d<\/p>\n The Universities Superannuation Scheme said its investment approach was focused on achieving the returns necessary to meet members\u2019 promised pensions, as well as taking into account regulatory requirements and \u201chow much risk the scheme\u2019s sponsoring employers can support\u201d.<\/p>\n It said the scheme was now in surplus \u201cindicating that our growth-oriented strategy, broadly supported by employers, is doing the job it is designed to do. <\/p>\n \u201cAround half the scheme\u2019s assets are invested in the UK, including almost \u00a313 billion in private assets. We welcome the steps the government is taking to encourage further investment.\u201d<\/p>\n The Airways Pension Scheme was contacted for comment. <\/p>\n","protected":false},"excerpt":{"rendered":"Leading pension funds are missing out on billions of pounds by playing it safe with their investments, experts…\n","protected":false},"author":2,"featured_media":211380,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[138,246,111,139,69,244,245],"class_list":{"0":"post-211379","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-new-zealand","11":"tag-newzealand","12":"tag-nz","13":"tag-personal-finance","14":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/211379","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=211379"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/211379\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/211380"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=211379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=211379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=211379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}