Defined Contribution (DC) schemes are under growing pressure to back UK growth, but the example they are told to follow – the Local Government Pension Scheme (LGPS) – has some advantages they cannot easily replicate. Border to Coast’s £500m UK opportunities strategy shows what can be achieved when funds pool and commit to illiquid assets. It is already backing UK renewable energy, direct lending, and later stage life sciences, aiming to support firms that struggle to secure financing while delivering returns for members.
For DC schemes, there are lessons as well as barriers. Investments can be explained in terms of both financial outcomes and wider benefits, e.g, jobs and innovation, in order to create more resonance for members, but access depends on scale. Border to Coast brought together 11 funds with £65bn in assets to make meaningful commitments. Most DC schemes cannot do this alone, which is why pooled vehicles such as LTAFs and master trusts are so important. The first LTAFs are live and some DC providers are beginning to use them.
DC still faces structural constraints. Daily pricing, switching, and retirement flexibility create liquidity pressures that are not present in Defined Benefit (DB). Managers are responding by designing funds that blend liquid and illiquid assets, while platforms are adapting to allow daily-dealt access to longer-term strategies. These are promising developments, but the regulatory framework must support them. Backward-looking value-for-money metrics risk penalising investments that take years to show their benefit. A forward-looking approach to expected returns, diversification, and member outcomes is needed if DC is to participate at scale.
Border to Coast shows the potential for pension capital to support growth and innovation. The foundations for DC are starting to appear, but without forward-looking value measures and regulatory flexibility, the sector will remain on the sidelines. The risk is not that DC cannot invest in productive finance, but that the rules make it less rational to try. If government wants DC capital to follow the LGPS example, that has to change.
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