Unlock pension funds to power up UK infrastructure
Unlocking capital from pension funds could power up our infrastructure while also providing better returns for customers, writes Mike Eakins
The UK is at a critical juncture in its pursuit towards long-term economic growth and its low carbon commitments. Delivering on these ambitions will require unprecedented investment in green infrastructure, with between 65 per cent and 90 per cent of the required funding expected to come from the private sector.
The stakes are high. The urgency is real. But significant challenges remain. In clean power infrastructure alone, the UK faces a funding gap of nearly £19bn per year.
To close this gap, we must mobilise capital across the investment ecosystem, each with different risk appetites. But persistent policy, regulatory and structural barriers continue to constrain the flow into productive assets that will lead to a low carbon economy.
If we can get it right, we can create better pension returns for UK savers and thus get better outcomes for people’s retirement pots.
National Wealth Fund must evolve
Government institutions like the National Wealth Fund (NWF) could be instrumental in unlocking long-term patient capital from pension funds and insurers like Phoenix Group, which in turn, leads to better returns for customers. But to realise this ambition, the NWF must evolve.
The NWF’s current structure disproportionately supports banks, particularly during the early stages of infrastructure development and refinancing, therefore crowding out institutional investors, like pension funds and insurers. This leaves substantial pools of long-term capital underutilised, while infrastructure projects in need of investment continue to face persistent funding gaps.
However, this challenge can be effectively addressed through targeted reform. By aligning NWF guarantee products with insurers’ Matching Adjustment requirements, these guarantees can be tailored to better reflect insurers’ regulatory obligations and risk management frameworks.
We’ve been encouraged by the NWF’s willingness to engage with industry stakeholders and are actively raising these issues across government taskforces. The upcoming release of the NWF’s Strategic Plan presents a timely opportunity to embed more inclusive support for insurers.
UK infrastructure is in need of long-term investment
Beyond the NWF, the government has made welcome progress through initiatives like the 10-Year Infrastructure Strategy, the Planning and Infrastructure Bill and the newly established National Infrastructure and Service Transformation Authority. These are positive steps toward coordinated, long-term investment in UK infrastructure.
The creation of the Strategic Investment Opportunities unit within the Office for Investment is another promising development. It aims to better match institutional capital with regional opportunities, helping to direct investment where it is most needed. However, to fully unlock this potential, institutional investors must be engaged earlier in the process, ensuring projects are structured from the outset with long-term investment requirements in mind. Achieving this will require deeper collaboration between government, developers, banks and investors to attract sustained capital flows.
While the government’s Infrastructure Pipeline outlines £531bn of planned investment over the next decade, investors need more detailed, project-specific information to make informed decisions. International models, such as those in Australia and New Zealand, highlight how greater transparency can build investor confidence and guide capital allocation more effectively.
Unlocking capital for clean growth
Earlier this year, we joined peers in signing the Mansion House Accord, committing to invest at least 10 per cent of default pension funds into private market assets by 2030, with five per cent directed toward UK-based investments. This is commitment conditional on a strong pipeline of investible projects.
To meet these targets, we need a capital structure that blends public and private finance to unlock investment at scale for UK infrastructure. With adequate guarantees in place, insurers could provide a senior debt layer of suitable credit quality to strengthen investment outcomes. This would significantly lower the cost of debt finance, making more projects viable in key sectors such as clean energy, transport and housing.
Efficient senior financing would also enable further capital, aligned to the Mansion House Accord but subject to different structural and risk requirements, to be deployed more effectively, generating higher returns for savers investing in the underlying project.
Combining these sources of finance, mediated by the NWF and supported by the government, we can deliver the full capital stack needed to bring infrastructure projects to life. The challenge isn’t a lack of capital, it’s a lack of investable opportunities optimised for the capital that’s available.
We want to work with government and industry to seize this moment, driving national growth while delivering better long-term pension returns for UK savers.
Mike Eakins is group chief investment officer at Phoenix Group