The Government Wants More of Your Pension in Private Equity - Should You Be Worried?

There’s a major shift happening in UK pensions - and it’s not getting the attention it deserves.

The government has unveiled plans to compel pension schemes to allocate more of your retirement savings into private markets, including infrastructure, private equity, and other illiquid assets. It’s being framed as a move to "boost the economy" — but beneath the surface, it raises serious questions about risk, transparency, and control.

Let’s break it down - what’s changing, what it means for your money, and what you can do about it.

The Big Change: Mandated Private Market Exposure

As part of its broader growth agenda, the UK government is set to introduce a Pensions Schemes Bill that will grant it powers to set binding asset allocation targets. In plain English: large workplace pension schemes, particularly auto-enrolment defined contribution (DC) pensions and certain public sector defined benefit (DB) schemes, could soon be legally required to invest a portion of their assets in private markets.

While some large pension providers have already agreed voluntarily to invest up to 10% of their defined contribution assets into private markets by 2030, the government is now signalling that this commitment will no longer be optional.

Defined benefit schemes, particularly in the public sector, are also being targeted with £27.5 billion earmarked for “local investment priorities.” On top of that, there are plans to pool £1.3 trillion of retirement savings into giant “megafunds” that could be steered more easily by policymakers.

Important note: These proposals currently apply only to large occupational pensions and not to individual arrangements like SIPPs or personal pension plans (PPPs). However, many in the industry are concerned that such reforms could lay the groundwork for broader application in the future.

Why Is the Government Doing This?

In short: to stimulate UK economic growth.

By funnelling pension capital into private UK businesses and infrastructure, the government hopes to bridge the investment gap left by dwindling public finances. The ambition is understandable. But when it involves your pension, ambition needs to be balanced with prudence.

There’s a fine line between encouraging investment in the UK and politicising pension allocations - and many in the City believe that line is being crossed.

What Does This Mean for You?

1. Your Pension Could Be Exposed to More Risk and Illiquidity

• Private equity and infrastructure investments:

• Are typically less liquid - meaning they’re harder to sell quickly in volatile markets.

• Come with valuation uncertainty, especially now as interest rates remain high.

• Often charge higher fees and are harder to scrutinise.

In good times, they can generate strong returns. But right now, many private equity funds are struggling. A recent analysis from Stifel shows that “exit” activity (i.e. selling investments to realise gains) is at decade-lows. Buyers are scarce, valuations are stretched, and there's concern that the public will be used as a buyer of last resort for private assets that institutions are struggling to offload.

2. You May Not Have a Say in Where Your Money Goes

Most UK savers are automatically enrolled into workplace pension schemes, many of which follow default investment pathways. If the default strategy is forced to include private market allocations, you could be exposed to these assets without knowing - or consenting.

At this stage, the 10% target is across the scheme - not per individual - but you still carry the investment risk. If you’re not engaged with your pension, you’re more likely to end up bearing the brunt of any poor outcomes.

3. This Sets a Precedent That Could Escalate

If the government starts with 10% in private markets today, what’s to stop future administrations from directing pensions toward specific sectors, projects, or companies? This is what many trustees and investment professionals are concerned about - a “slippery slope” where political priorities begin to override fiduciary duties.

Why the Timing Is Concerning

Private markets have been riding a wave of popularity - but cracks are showing:

• Liquidity is tight. Fewer deals are closing. Private equity exits have dropped sharply.

• Valuations remain questionable. Higher rates mean lower present values - but many funds haven’t adjusted down.

• Discounts are widening. Several listed private equity trusts are now trading well below their net asset values.

Put simply: this may not be the time to pay a premium for an illiquid asset class.

And while these reforms are currently aimed at large workplace schemes, they set a precedent. Pension policy often evolves incrementally and once state-directed asset allocation becomes normalised, there’s a risk that future governments may expand similar rules to include a broader range of pension products, including SIPPs and personal pensions.

What You Can Do

Here’s the good news - you’re not powerless.

1. Check where your pension is invested

Most people have no idea how their pension is allocated. Take 10 minutes to log into your pension portal and look at the underlying funds. Is there any exposure to private equity or infrastructure? Is it aligned with your risk tolerance?

2. Consider your options

If you're uncomfortable with the direction things are going, it may be worth exploring alternative pension providers or consolidating your pensions into a vehicle where you have more control over how it’s invested.

3. Get advice

We help clients understand their pension holdings, evaluate the risk, and take steps to align their retirement strategy with their broader financial goals. If this topic concerns you, you’re not alone - and we’re here to help.

Final Thought

For years, pensions have been seen as a “set it and forget it” part of personal finance. But the landscape is changing. With governments growing increasingly interested in where and how your pension is invested, you owe it to yourself to stay informed.