According to the Financial Survey of Pension Schemes conducted by the Office for National Statistics (ONS), UK funded occupational pension schemes had a market value of £2,009bn on 31 March 2024. 

This comprised £1,179bn for private sector defined benefit and hybrid (DBH) pension schemes, £289bn for private sector defined contribution (DC) pension schemes, and £548bn in local government and other public sector DBH pension schemes.

By definition, this does not include unfunded public sector pension schemes such as those for the NHS, teachers and civil servants that are paid for out of current and future taxation. Nor does it include personal pension plans (including self-invested pension plans) that are not administered by employers.

According to the ONS analysis, bonds and fixed-interest products were valued at £804bn on 31 March 2024 or 40% of the total. There was £261bn invested in index-linked gilts, £134bn in conventional gilts, £126bn in corporate bonds and £64bn in other debt securities held directly, together with £219bn in fixed interest products held through pooled investment vehicles.

Equities of £497bn (£162bn held directly and £335bn through pooled investment vehicles) represent just under 25% of total market value, while private equity, hedge fund and other unquoted investments of £187bn (£149bn directly and £38bn through pooled investment vehicles) represented a further 9%.

Insurance policies were valued at £148bn or 7% of the total, while cash and money market investments of £111bn (£73bn cash and cash equivalents held directly and £38bn money market investments via pooled investment funds) represented a further 6%.

The balance of £174bn or 13% of total market value comprises £146bn of ‘mixed asset’ investments held through pooled investment vehicles, property of £88bn (£34bn held directly and £54bn through pooled investment vehicles) and other investments of £182bn (£25bn directly and £157bn through pooled investment vehicles) less £141bn in liabilities and £14bn in net derivatives (£198bn with positive fair values less £212bn with negative fair values).

Pooled investment vehicles make up around 49% of overall market value, but this varies by type of scheme with 35% invested by private sector defined benefit schemes, 89% by private sector defined contribution schemes and 57% by public sector defined benefit schemes. The latter is likely to increase significantly if the government’s plans to consolidate the investment portfolios of the 86 local government pension schemes is achieved.

There are just under 9.7m members of private sector defined benefit schemes, of which 4.8m are receiving a pension, 4.2m have deferred entitlements, and only 0.7m are active members. Their aggregated market value has fallen from a peak of £1,821bn on 31 December 2021 to £1,179bn on 31 March 2024, a fall of £642bn over 27 months. This partly reflects the maturity of these schemes, with a net cash outflow over that period of £67bn (£112bn in pensions and lump-sum payments over that time less £43bn in employer contributions and £2bn in employee contributions), but most of the decline has been down to ‘conservative’ investment policies that have seen most defined benefit schemes invest heavily in fixed interest products and debt securities. These fell dramatically in value as interest rates have risen from 0.25% on 31 December 2021 to 5.25% by 31 March 2024.

The private sector defined contribution schemes have 31.3m members of which 11.3m are active, 20.0m are deferred and just around 30,000 are pensioners. The low number of pensioners is because most defined contributions schemes purchase annuities for their members on retirement. 

Public sector defined benefit schemes have 8.1m members, of which 2.7m are active employees making contributions, 2.8m are deferred, and 2.7m are pensioners. 

Average market values per pension scheme member are around £121,500 for private sector defined benefit schemes, £9,200 for private sector defined contribution schemes, and £67,300 for public sector defined benefit schemes.

The disparity in average investment values between private sector and public sector defined benefit schemes is principally because the former have been closed to new members for some time (and hence comprise or are close to a full career’s worth of contributions and asset growth), while the latter have members at all stages of their careers.

The low average investment value in occupational defined contribution pension schemes is extremely concerning, even if many members will also have separate personal pension plans or are members of multiple plans, as well as on average being much earlier in their careers. Saving levels will need to rise substantially if future generations are to live as comfortably as the current generation of ‘gold-plated’ pensioners who have benefited from both the relative generosity of defined benefit pension schemes and the triple lock on the state pension over the last decade and a half.