Pension schemes are playing a dangerous game with your money
This article was originally published in The Times on 6 May 2026. It explores pension scheme structures and what to be mindful of.
Investment in private markets will add risk to retirement funds — it needs to be properly managed
By several measures, private investment markets have been one of the quiet financial success stories of this century. They stepped into the space vacated by retrenching banks, supplied capital to growing businesses and, for professional investors, delivered attractive risk-adjusted returns that complemented public markets.
That very success, however, now creates a new risk. Just as appetite for these assets appears to be softening, there is an accelerating push to “retailise” private markets — particularly through pension capital. The danger is that this effort imports the fragilities of an illiquid asset class into the savings of everyday investors and, potentially, at an awkward moment in the credit cycle.
Nowhere is this tension more clear than in the current debate, first aired in Mansion House policy speeches, over whether UK pension schemes should be compelled to allocate 10 per cent of assets to unlisted private investments, half of which would be UK-related.
The voluntary agreement from Mansion House has since been enshrined as “mandation” in the Pension Schemes Bill — which cleared parliament last month, albeit in a watered-down form. It was a political hot potato, ricocheting between the Lords and the House of Commons, precisely because it raises a legitimate question: is it sensible to give the government the power to force a portion of pension assets into illiquid investments, even under the reassuring banner of “long-term investing”?
Some have already taken that leap. Consider Nest, the government-backed auto-enrolment pension firm with nearly 14 million members and over £60 billion of assets under management. Nest has committed £450 million to private credit, entirely in US strategies rather than British ones, and has set a target of allocating 30 per cent of total assets to private markets by 2030.
This is bold. It is also questionable. Tying up almost a third of UK workers’ pensions in inherently illiquid assets marks a major structural shift in how retirement risk is borne. Under the old defined benefit system, this would not have mattered. Investment decisions sat with the sponsor; members were promised an income at retirement regardless of market outcomes. Today, most private sector workers rely on defined contribution schemes, where investment performance directly determines their retirement security.
Those with a self-invested personal pension (Sipp) may feel comfortable choosing their investment assets, or company, and accepting the risks involved. But most savers are in auto-enrolment default funds, where these decisions are taken on their behalf. Auto-enrolment has been a hugely positive reform, but if pension investment portfolios are to change materially, particularly towards opaque and illiquid assets, shouldn’t savers have more say? Or, at the very least, clearer explanations of the risks they are now bearing? Who is responsible for explaining the trade-offs between private and public markets and the consequences if liquidity is needed at the wrong moment?
This is not an argument against private markets per se. It is an argument about structure, suitability and timing. Illiquidity is not an accidental flaw of private markets, it is a defining characteristic. Capital is extended precisely because public markets are unavailable, unsuitable or uneconomic. Investors are compensated through higher yields, tighter covenants and greater control rights.
The problems arise when this illiquidity is wrapped inside vehicles that offer the appearance of liquidity: monthly or quarterly dealing, partial redemptions or “evergreen” fund structures. These arrangements work — until they don’t.
When redemption requests exceed cash inflows, or assets can only be realised at a discount, managers face an unenviable choice: sell assets cheaply, disadvantage remaining investors or suspend withdrawals entirely. Remember the Woodford debacle? That trade-off is uncomfortable even in institutional portfolios. It is far more troubling when applied to pension capital that may be needed for life events, emergencies or retirement income.
None of this implies that ordinary investors should be barred from private markets. But it does demand real discipline about who these products are for, how they are structured and, importantly, how they are sold. Above all, it requires frank communication: private assets are not a smoother version of public fixed income or equities. They are a fundamentally different investment instrument.
The larger policy challenge arguably lies elsewhere; that is, getting people to invest at all. Rather than diverting pension savings into opaque structures that many savers will never fully understand, policymakers should focus on building engagement with liquid, traded equity and bond markets. Cash under the bed, or even in a cash Isa, is not likely to deliver a good outcome for long-term savers.
Above all, policymakers and regulators should resist the temptation to treat the conversion of ordinary investors as a growth objective in its own right. Broadening access to capital markets is a worthy aim. Transferring liquidity risk from institutions to households is not.
This article is for informational purposes only and does not constitute financial advice. This is the opinion of Charlotte Ransom as of 6th May 2026 and if you are unsure as to whether disinvesting or investing is suitable for you, please seek advice.