L&G report reveals potential £220 billion investment prize for UK economy

• Reforms could drive £220 billion in UK investment over the next decade, permanently adding 0.7% to UK GDP by 2035
• Oxford Economics modelling shows six growth levers, if fully implemented, could also deliver £8.8 billion in additional government revenues and raise annual household disposable incomes by an average of £330 by 2035
• One of the UK’s largest investors shows the prize available for UK growth from expanding and unlocking the country’s investing environment.

In addition to unlocking investment, if fully implemented, the reforms could generate £8.8 billion in additional government revenues and raise annual household disposable incomes by an average of £330 (2024 prices) by 2035. This uplift builds gradually over time as the measures take effect, reflecting the long-term benefits of mobilising pensions and insurance capital into productive assets.

The report, A Blueprint for Growth, focuses on key policy levers that could deepen the pool of pensions and institutional capital, expanding and unlocking long-term savings for investment in productive assets in the UK, and aiding its deployment. The six growth-unlocking policies have been selected by L&G from their perspective as one of the biggest investors in the UK.
  
The analysis, by Oxford Economics, models the full potential impact of four reforms to the pension and insurance sector which Government are in the process of implementing, and tests two new opportunities related to policies that would support pension contributions and Solvency UK, where going further could generate significant additional investment in the UK. The collective impact shown by the modelling highlights the impact that effective policy implementation could have on UK growth, long-term gains for households and the attractiveness of the UK for institutional investors. 
  
The pension and insurance sector already plays a key role in driving investment in the UK economy, with the total value of UK pension assets estimated at £3.2 trillion in 2024. A Blueprint for Growth underlines the critical and growing role that long-term institutional investors, such as L&G, can play in supporting government’s Plan for Change, by directing capital into assets that drive sustainable growth.  Investment in productive assets such as new housing, clean energy generation, and digital infrastructure not only strengthens the economy, but deliver on broader societal benefits. 
 
This builds on L&G’s long-standing role as one of the UK’s leading institutional investors, committed to directing capital into assets that deliver both economic and social value. Earlier this year, L&G announced a £2 billion programme for housing, infrastructure and urban regeneration, expected to create around 24,000 jobs and deliver 10,000 new social and affordable homes, demonstrating how pensions capital can be mobilised to strengthen communities and drive national prosperity.

The study models the impact that full implementation of four existing government reforms and two further opportunities could have on the UK economy:

1. The Mansion House Accord – a voluntary industry commitment from 17 defined contribution pension providers (including L&G) to allocate 5% of their main default funds to UK private markets by 2030.
2. The Local Government Pension Scheme (LGPS) – new requirements for administrating authorities to develop (and report on) their approach to local investment as set out in the Government’s response to the Fit for the Future consultation.
3. Surplus Extraction – the introduction of new powers allowing trustees of defined benefit schemes to modify rules so that they can pay surpluses back to sponsoring companies.
4. Planning reforms – policies in the updated National Planning Policy Framework (NPPF) that supports investment in the housing sector by improving efficiency and predictability within the system.
5. The opportunity from increasing pensions contributions – modelling a scenario where auto-enrolment contributions are shifted to a minimum of 12% by increasing both employee and employer auto-enrolment contributions to 6% over a six-year period and removing the current age and earnings eligibility thresholds. This modelling could help inform The Pensions Commission work on pensions adequacy.  
6. Building on Solvency UK – the investment accelerator – already in train - will allow insurers to invest ahead of regulatory approval. A further opportunity to unlock investment could be delivered through continued refinement of Solvency UK, enabling insurers to invest more easily in long-term infrastructure. This adjustment relates to the regulatory treatment of whole projects to limit the need for insurers to securitise or pool assets into bonds or other debt instruments. 

Under the full potential scenario modelled, these interventions together could mobilise up to £220 billion in additional investment, adding 0.7% to UK GDP and £8.8 billion to public revenues by 2035.  Under a reduced-scale scenario, where the reforms are either not implemented fully or where other factors impact the UK’s investing environment, the report finds the reforms could still add 0.5% to GDP and generate £5.3 billion in government revenues.

Realising the full potential of the £220 billion additional investment will depend on driving its deployment into productive assets across the economy. The next phase of A Blueprint for Growth will focus on the investment opportunities - assessing how different forms of long-term capital can be mobilised into sectors that help drive growth, such as new housing, clean energy generation, and digital infrastructure. As part of this L&G will be convening a range of stakeholders - from government to UK business and investors - to examine any wider policy barriers to deploying capital into key productive assets across the UK.