By George Aliferis, CAIA, Founder of orama.tv and Host of the Investology podcast
The global landscape for pensions is shifting. In the UK, these changes are highlighted by the recent Mansion House Accord, which signals a coordinated push to evolve the UK's pension system towards more private assets, by the leading UK DC (defined contribution) schemes and encouraged by the Government.
Meanwhile, the looming pension crisis is, at its heart, a crisis of under saving that will not be rescued by a more optimal allocation. The simple truth is that people in DC schemes are not putting enough money away for their retirement. In the UK over 2.6 million people are affected, and the crisis will be most acute around 2040, as it will see the highest number of 'financially struggling' or 'under savers' reaching retirement.
This isn't just a policy problem; it's a human behaviour problem. The origin of this crisis is a chronic lack of contribution, which itself stems from a profound lack of engagement with the very concept of a pension.
But paradoxically, the emergence of a new generation of pensions combined with this broader allocation of assets offers a transformative opportunity to solve the decade-old challenges that have come with the shift from DB (defined benefit) to DC. And the UK example can be seen from a global perspective.
The link between under saving and lack of engagement is starkly illustrated by a peculiar phenomenon: the "lost pension." There are over 3 million forgotten workplace pension accounts in the UK, holding an estimated £31 billion. This isn't just an administrative footnote; it's a powerful symptom of how disconnected people are from their own financial futures.
Surely, this wouldn't happen to someone with a financial education, or who works in the financial services industry, right? Well, it happened to me. I was one of the 3 million. While researching this very topic, it dawned on me that I had no idea what happened to the pension from my first job in the City of London. It was a pot of money I had contributed to, then completely forgotten as I moved on with my career.
My personal example highlights just how hard it is to be engaged with pensions, especially early in one's career. In my 20s, despite working in finance, the idea of a pension was abstract and distant. I contributed unknowingly, perhaps even unwillingly, as a default option. It took my 30s, with a higher income, growing awareness of tax incentives, and as I was working with pension clients (!) to become actively engaged.
The UK government has commissioned extensive research on pension engagement, and defines it as:
"Interest and involvement in the non-workplace pension, where involvement
is a positive decision to do, or not do, something in relation to their pension."
You can’t expect people to be actively contributing without being engaged. For many, that moment of engagement never arrives, and the small, forgotten pots from their early jobs are a testament to that lasting apathy.
What Neo-pensions Can Do (and what that Means for Engagement)
It’s not for a lack of trying. The UK is famous for its creative advertising, and over the years, various campaigns have attempted to nudge the public towards better saving habits, featuring workplace-invading monsters to reality TV stars. While these efforts moved the needle, they haven't solved the core engagement problem.
A new approach is emerging, inspired not by advertising, but by technology. Just as neo-banks revolutionised retail banking with slick, user-centric digital experiences, "neo-pensions" are set to do the same for retirement savings. New players see a modern, intuitive interface as a core element of their offering. But the real opportunity goes beyond the surface, in rebuilding the core technology from the ground up. Much of the traditional pension infrastructure was built for a different era, adapted from old systems rather than designed for the current defined contribution world. Modern, cloud-native platforms enable more nimble administration and the creation of smooth, app-based tools. They can meet the savers in their daily lives, and they are also more efficient enablers to access those assets that The Mansion House Accord targets.
The pension industry can learn from the engagement models of Silicon Valley investing apps. But where the likes of Robinhood creates a gamified experience that encourages daily trading, pension apps still need to define the right approach to achieve enough engagement.
One intuitive opportunity is to shift the mindset of users from an abstract "pension pot" to a tangible future income, making the end goal feel more real and immediate.
This is where technology's impact goes beyond the user interface. By increasing transparency, digital pension platforms can open a window into where a saver's money is actually going. This creates a powerful feedback loop between asset allocation and engagement.
When pensions invest in private market assets like infrastructure, renewable energy, or local development projects, they become more tangible. It’s one thing to see a line on a statement showing an allocation to an abstract "global equity fund,” even a green one; it’s another thing entirely to know your pension is helping to fund the wind farm you see from the coast, the electric vehicle charging points in your town, or even the swimming pool heated by excess energy from a local data centre. These are real, visible assets that people can connect with. As such, private assets can bring this sense of ownership, and direct impact can foster a level of engagement that abstract financial products never could.
An executive at Mobius, investment platform services for UK pension schemes, mentioned wind farms as a specific example of assets that pensions can potentially access, unaware that I was looking at the Rampion Wind Farm off the coast of Brighton in that moment - it’s not just about the view, it also powers my home!
This introduces a new dimension to the classic efficient frontier model of portfolio theory. Traditionally, asset allocation has been a two-dimensional puzzle, optimising for risk and return. But if allocation choices can directly influence contribution levels through engagement, then engagement itself becomes the third critical axis. The question is no longer just, "What is the optimal allocation for risk and return?" but rather, "What is the optimal allocation that maximises returns, manages risk, and boosts engagement-driven contributions?"
Solving this is obviously a good commercial opportunity for pension providers, but it has a wider societal impact.
UK Pensions: Laggards to Leaders?
The UK pension landscape is at a pivotal moment. A convergence of digital innovation, supportive government policy, and the democratisation of alternative investments has created a unique opportunity to solve the engagement crisis. The shift to a system where individuals are responsible for their own retirement outcomes is far from complete, but the UK could be on the cusp of a breakthrough.
While the UK often sees itself as a laggard, the Chancellor often quotes Australia and Canada for pension models, this new, holistic approach could be a game-changer. By designing a system that encompasses the entire value chain, from the investment proposition to the individual's digital experience, the UK has a chance to build a better retirement future for generations to come. Adding engagement as a core pillar of allocation strategy, powered by tangible assets, is a key part of this. If successful, this model for tackling under saving could even become an example for the rest of the world.
Looking back at my own experience, I’ve been thinking: what if instead of joining a “default fund” when I signed the job contract (and then forgot about it), I had been:
Notified once in a while, according to my preferences.
In these notifications, there was something that I could relate to (e.g., the swimming pool where I go weekly belongs to [sport_infrastructure_fund] and is heated by the data centres from [direct_investment] by the pension provider chosen by your employer).
I would likely feel better about my employer, be more engaged with my pension, contribute more, and be unlikely to forget about it.
Luckily, I kept my old Yahoo email (unlimited data storage). That’s how I found out I had a pension there that I had forgotten about and needed to reclaim. I’ve written to the pension provider - a letter sent by post (the digital revolution hasn’t reached that corner of the pension system yet). I haven’t reclaimed it yet, but if it's invested in anything reasonable, I should at least have a few hundreds of pounds there. It’s a mini pension experience in itself, with an uncertain outcome but one that can only be beneficial.
A previous version of this article was originally published here.
About the Contributor
George Aliferis, CAIA is the Founder of Orama, a video and podcast agency helping financial firms create more content that drives more commercial value. As the host of the Investology podcast (audio, video) he interviews founders, innovators and experts to rethink investment management to deliver better outcomes for investors. Previously, George worked as a front office professional for over a decade across derivatives, ETFs and alternative investment products in Paris, Singapore and London. He holds a Masters Degree from HEC Paris (connect on LinkedIn).
Learn more about CAIA Association and how to become part of a professional network that is shaping the future of investing, by visiting https://caia.org/