UK PensionWatch: Q2 2026 | Insight Investment

In a keynote speech at the Labour Party Conference, new Prime Minister Burnham announced that until 2030, the UK state pension will continue to rise each year by whichever is highest: inflation, average earnings growth, or 2.5%. But from 2030, under the next Parliament, he plans to remove the earnings-growth element. The state pension would instead increase each year by the higher of inflation or 2.5%, with the government using the resulting savings to help fund a new National Care Service.

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Source: Andy Burnham’s speech to Labour Party Conference 2026, 29 September 2026, Labour

The consultation sets out proposals for the implementation of automatic consolidation of deferred small pots through the establishment of consolidator schemes, in aiming to tackle the growing number of deferred small pension pots across the pensions system. The government cites an estimated 13 million deferred small pension pots, which cost around £240 million annually in administration, and the government is aiming for small pot consolidation to be operational from 2030. The deadline for responses to the consultation is 17 November 2026.

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Source: Small Pots: a pathway for consolidation, 15 September 2026, DWP.

Analysis by LCP found that total buy-in volumes over the first six months of the year were £10.2bn, c.5% higher than the £9.7bn recorded over the first half of 2025 but materially lower than the volumes seen in the first half of 2023 (£21.1bn) and 2024 (£15.2bn). An unnamed transaction of £1.5bn was the only transaction over £1bn in the first half of 2026, and around 80% of transactions were below £100m.

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Source: Lack of £1bn+ deals drives lower buy-in volumes for H1 2026 but leads to exceptional buy-in pricing, 22 September 2026, LCP.

The government published four growth goals which DWP is issuing to TPR, saying: “Effective pensions regulation…has huge potential to support economic growth. Firstly, through increasing the value of pensions to boost retirement incomes, and, secondly, through the use of pension funds to invest in and grow the UK economy”.

The four goals are as follows:
1. Reform the workplace pensions sector to boost growth and support adequate income for pension savers in retirement
2. Unlock surplus/capital to benefit savers, employers and the economy
3. Support productive investment to help grow the economy and increase saver returns
4. Promote the responsible and safe use of AI technologies in pensions to improve saver outcomes

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Source: Regulation Action Plan: Growth Goals, 10 July 2026, DWP

The regulator engaged with pensions industry participants “to better understand the kinds of private market investment opportunities that UK pension schemes find potentially attractive to invest in”. Stakeholders included investment consultants, trustees, pension schemes and industry bodies.

Key findings included that trustees are open to UK private market investments and DC schemes and master trusts have made progress, but that DB schemes have limited appetite for such investment, because they have limited need for growth assets, illiquidity can reduce their end-game flexibility, and some open or immature schemes already hold material allocations to private market investments.

The study also identified various barriers to investment, highlighting potential knowledge gaps, tension between fiduciary duty and targets for investment, time lags on investments, constraints in regulation, and concerns around fee structures and transparency. The regulator said it has shared its findings with the government and that it will continue to engage on the topic.

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Source: Market oversight: UK pension funds - private market investment, 21 September 2026, TPR

Source: Bloomberg. Data as at 30 September 2026. TR = total return index

The investment grade credit market remains finely balanced; on the one hand credit spreads are still close to post-global financial crisis tights despite heighted geopolitical uncertainty, and yet they look more attractive when considering value from an all-in-yield perspective. New issuance remains elevated, driven largely by a wave of issuance from hyperscalers, but has been matched by investor demand that continues to be supported by strong corporate earnings growth. Some hyperscalers have started to supplement debt funding with equity issuance, partly easing concerns around rising leverage levels.

Given the scale of issuance seen so far this year from the broader market, we believe some financing activity has been brought forward, which could result in better technical dynamics into the year-end. From a fundamental perspective, corporate balance sheets are underpinned by robust and broad-based earnings growth, healthy liquidity positions and continued access to capital markets. So, while valuations remain rich, it’s difficult to see meaningful softening in demand for investment grade credit with supportive all-in-yields, supportive fundamentals and a resilient economic outlook. We therefore believe this supports a modestly constructive outlook for credit markets, with a focus on bottom-up security selection.

Despite ongoing geopolitical tensions, inflation uncertainty and interest-rate volatility, we remain broadly constructive on high yield markets. Attractive all-in yields, resilient corporate fundamentals and strong corporate earnings and revenue growth are underpinning demand. Spreads widened in Q3, with a sharp selloff in lower-rated credits, despite a generally positive outlook for future earnings for the asset class as a whole and high interest coverage levels that suggest many companies could weather a higher-rate environment. Although we continue to be cautious on CCC-rated names, we believe this offers an attractive entry point for higher-rated issuers, although we continue to see income rather than spread compression as the primary driver of future returns.

We also expect issuance to accelerate following the summer slowdown as companies return to both bond and loan markets, although robust investor demand should allow markets to absorb this supply without significant disruption. At the same time, dispersion continues to run at elevated levels as investors are rewarding issuers with strong balance sheets, resilient cashflows and credible deleveraging plans while penalising those facing structural or operational challenges.

Against this backdrop, we believe careful credit selection will continue to be important. While we believe high yield markets continue to offer compelling income opportunities, future performance is likely to depend on identifying and avoiding issuers facing business-model disruption or deteriorating fundamentals

Economic data across both the US and Europe have continued to demonstrate remarkable resilience, with labour markets remaining healthy and consumer spending broadly supportive of growth. Corporate fundamentals also remain broadly stable, supported by solid earnings, healthy balance sheets and continued access to capital markets. Against this backdrop, demand for the asset class has remained robust, driven by both attractive income levels and its defensive characteristics. The predominantly floating-rate nature of the market means investors benefit from any further rate increases.

In an environment where longer-dated bond markets remain sensitive to concerns around inflation and fiscal deficits, the asset class potentially offers a relatively insulated means of generating income without taking significant duration risk. Given the strength of investor demand and the favourable financing environment, we would expect primary-market activity to pick up into the end of the year. Our focus remains on senior, well-protected parts of the capital structure, prioritising transactions with robust underwriting, strong servicing and structural protections that preserve cashflows in downside scenarios. We believe this positioning should help insulate portfolios from ongoing macro, inflation and geopolitical uncertainty, while allowing us to pursue attractive income and relative-value opportunities.