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The UK government should prioritize reform of the UK’s £1.2tn defined benefit pension system to unlock billions of pounds for investment, according to asset managers.

Last November the government announced plans for a series of “megafunds” across defined contribution (DC) and local government pension schemes to encourage more investment in Britain’s infrastructure and fast-growing companies.

But it has yet to outline plans for corporate defined benefit (DB) pension schemes, despite a consultation from the previous government earlier this year exploring options to allow companies to access surpluses in scheme, which would encourage them to invest in riskier assets.

“We think it’s important that DB schemes are seen as a priority – they have the potential to get money into the ground quicker than other areas,” said Jos Vermeulen, head of scheme solutions at Insight Investment , which manages £665bn of UK assets.

“There is scope for up to £100bn to be released over the next 12 to 24 months. . . this is a once-in-a-generation opportunity to change the fortunes of the UK. . . if you miss that opportunity it may disappear,” he added.

Owen McCrossan, the head of investments for abrdn group pension schemes, said the DB pension schemes were “certainly a pool of capital that would help fill the gap in productive finance”.

A 5 per cent allocation to productive assets such as real estate and infrastructure “could raise £50bn”, he added.

That’s the same amount the government hopes to bring into productive assets by 2030 under its plans to consolidate defined contribution workplace schemes into funds of at least £25bn of assets.

Calls for the government to reform the rules around DB schemes come as a review of pension adequacy has been delayed. The review is expected to set out plans to increase auto-enrolment pension savings rates, which the government hopes will drive more investment into the UK.

Vermeulen said it is key that the DB pension reforms must be included in the pensions bill that will be set in the middle of next year.

In an interview with the Financial Times last month, pensions minister Emma Reynolds said she prioritized reforming workplace defined contribution schemes because that was “where the growth is”.

He pointed out that the majority of corporate defined pension schemes are closed to new members and “naturally have a less long term” as the schemes move on to less risky assets as they wind up or sell the their pension obligations to an insurance company.

However, industry insiders say a radical improvement in the funding position of defined benefit pension schemes in recent years means many are now in a position to take over. of increased risk, if the rules enable companies and scheme members to benefit from it.

To encourage schemes to “run” and invest in productive assets in Britain, Vermeulen proposed that the Pension Protection Fund cover 100 percent of pensions owed if a scheme fails to meet its obligations. Currently it pays between 70 and 90 percent.

The annual PPF levy will likely have to rise as a result, but the government can waive the fee if a fund invests a certain amount in British infrastructure or scale-up companies.

“The government can say ahead, to encourage schemes to invest in productive assets, if you invest 5 percent you will pay zero levy,” said Vermeulen.

Companies have been rushing to offload their pension obligations to insurance companies in recent years, with a record £60bn of transactions last year, according to the PPF. But this will slow down if the schemes guarantee full protection from the PPF and if the companies benefit from the surpluses.

In its response to the first phase of the pensions review, the Investment Association, which represents the UK’s fund management industry, urged the government to “allow for the safe capture of surplus funds” in DB schemes, even if formally outside the scope of the review.

“Subject to certain guardrails placed around excess acquisition so that the security of benefits is not undermined, the ability to acquire excess may provide an incentive to build surpluses by taking on more investment risk, according to to the broader objectives of the government,” said the IA.

The Department for Work and Pensions said it was reviewing responses from a previous government consultation on options for defined benefit schemes and a decision on over-flexibility “will be made in the coming months”. month”.