Patient Capital, Impatient Savers: The Governance Test for UK DC Pensions
The policy ambition
The Mansion House reforms set a clear direction: UK defined contribution pension schemes should allocate more to unlisted assets, including private credit, infrastructure and venture capital. The rationale is straightforward. DC assets are growing, and a large share sits in default funds with long horizons. If those savings can be channelled into productive UK assets, the argument goes, savers may earn an illiquidity premium and the economy gains patient capital.
As 2026 progresses, the debate has moved from principle to implementation. The question is no longer whether DC schemes should consider private markets, but how they can do so without compromising member outcomes. That is a governance question before it is an investment question. Private markets are not simply another asset class to add to a spreadsheet. They require different valuation, liquidity and oversight disciplines.
Why private credit fits the income brief
For fixed income investors, private credit is the most natural entry point. Infrastructure debt, direct lending and real estate debt can offer floating-rate exposure, contractual cash flows and spreads above public bonds. For a DC scheme with a long-term horizon, the illiquidity premium is a legitimate source of return, provided the scheme can tolerate the lock-up.
There are risks. Private credit is not a single asset class. It spans senior secured lending, mezzanine debt, distressed opportunities and specialist niches, each with different default and recovery profiles. Valuation is less frequent and often model-based. Covenants can erode in competitive lending markets. In a downturn, the absence of a public market price does not mean the absence of losses; it means the losses may be recognised later.
Infrastructure debt has similar attractions and similar caveats. It can offer long-dated, inflation-linked or regulated cash flows, which appeal to pension schemes matching liabilities. But projects carry construction, regulatory and political risks. A DC member approaching retirement may not have the same capacity to wait for a long-dated asset to mature as a defined benefit scheme does.
The liquidity mismatch
The central tension is between daily-dealing DC structures and illiquid underlying assets. Most DC members can switch or retire at short notice, while private market funds lock up capital for years. Schemes can manage this through careful cash-flow planning, allocations to liquid assets and redemption gates, but the risk cannot be eliminated. It can only be governed.
This is where the UK’s DC market structure matters. Many schemes are small, and small schemes struggle to access private markets on competitive terms. Consolidation helps, as does the growth of master trusts and long-term asset funds. The LTAF structure was designed to give DC schemes a regulated vehicle for illiquid assets, with governance and liquidity safeguards. It is a useful building block, but it is not a substitute for trustee competence.
Governance is the binding constraint
The Mansion House agenda has been accompanied by a push for better trustee skills, clearer guidance from The Pensions Regulator and greater scrutiny of value for money. These are not bureaucratic extras. They are the conditions on which the whole project depends. A trustee board that does not understand a private credit fund’s fee structure, valuation policy or liquidity terms cannot discharge its duty to members.
Fees deserve particular attention. Private market fees are higher and more complex than those for public bonds or equities. Performance fees, carry, transaction costs and fund-level expenses can erode the illiquidity premium. Disclosure has improved, but comparability remains poor. For DC members, who bear the cost, transparent and standardised reporting is essential.
There is also the question of default fund design. Most DC members do not make active allocation decisions. If private markets are included in default strategies, they must be introduced gradually, with clear communication and a genuine assessment of member risk tolerance. A one-size-fits-all allocation to illiquid assets is not prudent for every scheme or every cohort.
Can London become a credible hub?
The government wants London to be a global hub for private credit and infrastructure investment. The city has the legal, advisory and capital markets infrastructure to support that ambition. It also has a deep pool of pension savings. But credibility will depend on standards, not marketing. International investors will look for consistent valuation, robust governance, clear fee disclosure and a functioning secondary market.
The UK can build on its strengths in infrastructure finance, insurance and asset management. It can also learn from other markets where DC schemes have adopted private assets more quickly. The lesson is usually the same: start with governance, not allocation targets. Schemes that rush into illiquid assets without the right capabilities tend to discover their mistakes at the worst possible time.
What savers should watch
For DC members, the practical tests are straightforward. Are fees fully disclosed and comparable? How often are private assets valued, and by whom? What liquidity tools does the scheme have if redemptions spike? Does the default fund explain why private credit or infrastructure is included, and what it means for risk? These questions are more useful than headline allocation targets.
The pension bet on private markets is not inherently reckless. Private credit and infrastructure can play a legitimate role in a diversified DC portfolio, particularly for savers with decades until retirement. But the case is conditional. It depends on governance, transparency and a realistic approach to liquidity. If those conditions are met, London has a genuine opportunity to build a credible private markets ecosystem for UK pensions. If they are not, the push will look less like patient capital and more like a transfer of risk to savers who never chose it.
