Paula Llewellyn, CEO, DC & Workplace Savings, L&G
Defined Contribution (DC) pensions are undergoing a fundamental transformation. The old tapestry of listed equities and bonds is now enhanced with the new threads of private markets, infrastructure, and global best practices – creating a more varied and resilient retirement picture.
This is not decorative: it's practical. As life expectancy continues to rise – and with DC pensions now the dominant form of retirement saving in the UK – we need to consider innovative ways to seek long-term outcomes for millions of individuals.
We have seen huge evolution in the last year alone.
The new thread: private markets
Historically, private markets were kept at the margins of DC investing – thought too complex, too illiquid. But these asset classes offer a vital new strand: the potential for enhanced long-term returns through exposure to high-growth assets and sectors, like infrastructure, clean power and affordable homes.
While Long-Term Asset Funds (LTAFs) addressed some of the challenges faced by DC schemes, in our view obstacles remained to make these investments truly accessible to DC.
This has started to be addressed: in fact, L&G was one of the first to make private markets exposure available to DC investors (in July 2024), which marked a significant milestone for UK pensions and DC savers.
The Mansion House Accord: a national pattern emerges
The tapestry grew more ambitious with the updated Mansion House Accord earlier this year. We were one of 17 UK workplace pension providers to sign the updated Accord; pledging to invest at least 10% of DC default funds in private markets by 2030, with 5% of the total allocated to UK investments.
It marked a shared vision between government and industry to redirect pension capital into long-term productive investment.
While the commitment is bold, weaving private markets into mainstream DC investing needs careful craftsmanship – collaboration between trustees, regulators, asset managers, and platforms to align governance, risk, and communication.
Australia's supersystem: a global design to emulate?
To see this vision fully formed, we can look to Australia's Superannuation system. Here, the fabric of the investment landscape is already rich with private markets, infrastructure, and alternative assets. Large, consolidated ‘super funds' have the scale, governance, and in-house expertise to operate like institutional investors, creating robust funds and portfolios for members.
The UK could draw from this design – especially around consolidation and scale. Larger DC schemes and master trusts are better positioned to access illiquid markets, negotiate fees, and embed diversified investment philosophies.
I recently visited Australia with some of my DC colleagues to better understand what we can learn – and adapt – from its successes and growing pains.
Australia is further along in the sustainable retirement income journey and its super funds already invest a significant proportion in national projects; two key focus areas for the UK. While, the UK has made significant strides in pension reform, making sure savers have adequate retirement funds remains a crucial challenge.
Designing the future of retirement
What is clear is that the tapestry of DC pensions is changing. I was recently appointed as the CEO of DC and Workplace Savings for L&G and I couldn't think of a more exciting time to take on this role.
With private markets woven into the investment mix, supported by policy shifts and inspired by international models, we are seeing the emergence of a new era in pension investing.
For DC savers, this pivotal point could mean greater financial security in later life. For the industry, we believe it's a chance to create something enduring: a retirement system not just functional, but future fit.
Interested in reading more about DC pensions and investments? You can find our latest content on our designated DC blog page.
Key risks
Past performance is not a guide to the future. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested.
It should be noted that diversification is no guarantee against a loss in a declining market. Risk management cannot fully eliminate the risk of investment loss.
Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an L&G fund or portfolio. The above information does not constitute a recommendation to buy or sell any security.
