DC infra investments could surpass £100bn by end of decade

The government has of late ramped up efforts to move pensions capital into infrastructure investment as part of its levelling up and net zero initiatives.

Its net zero strategy, for example, is attempting to make use of £695bn to £825bn of public and private sector capital over the 2022-35 period, amounting to £45bn to £55bn a year. Infrastructure investment sits at the heart of this agenda.

According to a report from Hymans Robertson, DC infrastructure investment could surge over the decade in line with the government’s campaign.

“We believe that DC savers can afford to take on more risk through illiquid assets,” said Callum Stewart, head of DC investing at Hymans Robertson. 

“For members at the early stage of their saving journey, risk can be rewarded over the long term, with a clear opportunity to enhance returns — in some cases by as much as 20 per cent.” 

This allocation could be evenly split between higher and lower-risk infrastructure, according to Hymans Robertson modelling.

Those who are early in their retirement savings journeys can afford exposure to higher-risk opportunities, the consultancy’s report observed.

“Any long-term capital commitment often associated with investing in illiquid assets should not be an immediate concern for DC schemes given savers’ very long time horizons,” Stewart said.

As savers approach retirement, the increased onus on risk management necessitates a shift to lower-risk infrastructure exposure, the report said. 

It suggested that this could account for as much as a fifth of savers' portfolios as they reach retirement, with no room for higher-risk infrastructure.

“With a significant proportion of returns provided by income, the value of DC savers’ assets will be less sensitive to shorter-term price fluctuations,” the report reads.

“Indeed, these characteristics are also likely to be attractive for retirement portfolios where capital (and inflation) protection becomes even more important.”