More than half of managers (54 per cent) are currently using AI within their investment strategies or asset class research and that enthusiasm continues to grow with 37 per cent planning to use (37 per cent) that technology in the future AI, according to a 2024 Mercer global investment manager survey.

Generative AI (Gen AI), which consultancy EY describes as “the new poster child of AI applications [and] promises to deliver superior performance while executing information search, retrieval and synthesis tasks on unstructured content, along with content generation capabilities”, is among the most likely AI to join asset manager toolboxes.

The Mercer research shows that 26 per cent of asset managers currently use Gen AI while 51 per cent plan to do so in the future.

This comes as no surprise to Oliver Johnson, chief revenue officer at SaaS provider SimCorp, who says Gen AI has multiple functions for the buyside.

“AI in investment management isn’t new; we’ve seen hedge funds using the technology to help them make investment decisions for years. The main difference now is the steps that Gen AI has taken. It ultimately makes that technology more accessible, enhances productivity and supports multiple aspects of asset management.”

Johnson says the buyside is ‘on an AI journey’ starting with what he describes as ‘conversational AI’ moving to incorporating the technology into more complex investment decision making.

“Conversational uses Gen AI to ask questions and improve productivity, but you rely on your users to have some skills in prompting the AI. An example there could be, ‘tell me my exposure by geography or by sector and what are the biggest contributors to my portfolio?’. The answers can help inform decision making.”

Johnson adds that Gen AI is also helping investment managers process the plethora of reports they receive from multiple sources into a consistent digestible format.

“Asset managers get a lot of analyst reports but they’re not very good at storing those in consistent formats. AI gives the ability to pull a research report from various sources, collating the data and providing a report, which makes life more efficient.”

Johnson says more managers are moving to using AI as an assistant where it can perform autonomous tasks.

“An example there is asking AI to create a block trade or transactions or rebalance the portfolio. It’s still human led, but the technology can take a task through multiple workflow steps.”

This is especially useful, Johnson says in private markets, where investors receive capital calls in myriad formats.

“If you’re a big pension fund with 200 private equity fund managers, every single week, they get different call and distribution notices coming into different formats. Machine learning can take that data, even if it’s in a different kind of format, and create a transaction in the platform. Again, it’s an efficiency step,” he says.

More recently, SimCorp has been focused on taking asset managers into the more advanced stage of AI, which Johnson calls an autonomous copilot.

“This is where AI collaborates with the users, it anticipates needs and it’s more proactive than reactive. Rather than asking the AI to rebalance the portfolio, it would detect a cash injection and suggest a simulation of three different ways that you could rebalance your portfolio,” he says

The Mercer survey reports that a quarter of managers report using AI to support investment decision-making, broadening inputs to investment risk-management frameworks (21 per cent), and portfolio construction and rebalancing (18 per cent).

For asset managers concerned such technology looks as if it is becoming a threat to jobs, Johnson argues that humans are still needed to make the ultimate rebalancing decision.

“We strongly believe that technology is not going to replace portfolio managers. Technology is going to make them way more efficient, but it’s still going to be the human at the end that makes the call.”

He continues: “We all thought a few years ago we wanted autonomous driving cars but that hasn’t happened. I think it’s something similar here. I don’t imagine we would ever be in a regulatory or a social place where we don’t want humans making the investment decisions, we just want to help them make better ones.”

A survey from Ortec Finance covering 140 pension funds worldwide, reveals pension funds based in the US and Canada are more at risk of poor performance than their European counterparts under a high warming scenario “if the current approach to setting and governing climate policy doesn’t change”.

The research finds that US pension funds are predicted to fare worst from increasing carbon emissions with investment returns diminishing by 50 per cent by 2040, followed by further declines without recovery until at least 2050.

Meanwhile, UK pension funds are likely to perform comparatively better, potentially incurring investment return drops of under 30 per cent by 2040 and reaching 30 per cent by 2050.

Doruk Onal, climate risk specialist at Ortec Finance, says the UK’s resilience is partly due to higher levels of asset diversification compared to the US, where pension funds have a heavy reliance on equities with allocations of 43.8 per cent.

The risk is particularly acute for US pension funds with significant exposure to fossil fuel companies which may become obsolete as economies transition to green energy sources.

Onal says: “Transition risks are expected to be the dominant climate risk driver compared to physical risks during the 2025–2030 period for pension funds worldwide. Additional low-carbon policies, revised NDCs (Nationally Defined Contributions), and net-zero target reviews by global investor alliance groups may accelerate the stranding of fossil fuel assets, potentially triggering market overreactions and widespread disruption.”

The research finds “significant variances” in how disruptive climate policies and transition risks will impact investment returns across pension systems in different regions. Certain UK pension funds are at risk of facing a decline in investment returns exceeding 20 per cent, while some US pension funds could see returns drop by 15 per cent in the short term.

Onal says “These potential declines are driven by the cascading effects of incoming climate policies, including market overreactions and sentiment shocks triggered by the mass sell-off of carbon-intensive assets. Such reactions could lead to liquidity challenges and abrupt price fluctuations as markets adjust asset valuations.”

In contrast, pension funds in Canada, the Netherlands and Switzerland show more homogeneous impacts from disruptive climate policies and transition risks.

Onal says a key reason could be a more stable and consistent policy environment in these countries, where clearer government action plans for transitioning to a low-carbon economy help reduce uncertainty for investors.

Onal adds: “The alignment between government policies and pension fund strategies is essential for pension systems and allows for a smoother adjustment to transition risks, minimising market shocks and promoting more uniform impacts on returns.”

 The decline in investment returns has serious and far-reach implications, Onal warns.

“For pensioners, reduced returns could lead to lower retirement benefits and financial insecurity. Sponsors, including corporations and government bodies, might face increased contributions to cover shortfalls, impacting their financial health. Employees could also be affected by lower pension fund performance, leading to potential adjustments in retirement planning and expectations.”

The new fund brings Aviva’s LTAF range to three with the Multi-Sector Private Debt product joining real estate and climate transition focused funds which are designed to make it easier for retail investors such as defined contribution (DC) pension scheme members to invest in illiquid assets.

The new LTAF received an initial GBP750 million of investment capital from the asset manager’s My Future Focus default DC pensions solution, and the asset manager expects other workplace schemes to follow suit.

Daniel McHugh, Chief Investment Officer at Aviva Investors, says:“Private debt is a key growth area for us, and we believe our multi-sector approach will best-capture relative value through the market cycle. This should give it potential to deliver strong risk-adjusted returns and diversification to pension schemes, whilst also meeting their liquidity needs.”

The first LTAF received Financial Conduct Authority (FCA) approval in March 2023, with a view to allowing retail investors move avenues to invest in illiquid assets.

2024 has seen something of a flurry of LTAF releases. This November, Fulcrum Asset Management announced it had received regulatory approval for its first commingled Long Term Asset Fund.

The WS Fulcrum Diversified Private Markets LTAF is the firm’s second LTAF following the launch its first offering on behalf of a single-employer UK DC pension scheme earlier this year.

The latest fund is an open-ended UK OEIC targeting long term capital growth via exposure to a diversified mix of private assets including value-add real estate, value-add infrastructure, natural resources, alternative credit and private equity including venture capital.

And this September, Schroders received approval for is Capital UK Innovation LTAF which will invest in early-stage UK life science and technology companies that align with eight key innovation themes: artificial intelligence, cybersecurity, fintech & payments, consumer, infrastructure software, vertical SaaS, oncology and biotech discovery platforms.

This is the first venture capital LATF to hit the market.

The rush to market for LTAFs follows increasing demand from DC schemes for suitable vehicles in which to channel assets to private markets.

An Aviva survey published this January found more than two-thirds (69 per cent) of DC pension funds expect to increase allocations to real assets over the next two years, up from 51 per cent a year earlier.

A second survey of institutional investors conducted by Carne Group in 2024 reports that more than three-quarters (78 per cent) of DC schemes expect the level of investment into private markets by wealth managers in the UK and Europe to increase over the next three years because of LTAF opportunities, 31 per cent of whom forecast a dramatic rise.

The Investment Association’s Imran Razvi expects to see more LTAFs launched, notably those focusing on single asset classes.

He says: “Our sense is the LTAFs that are currently available are more of a multi-asset, one stop shop approach to private markets. But increasingly you might see more asset class specific products as well.”

The CIG used its annual conference this week to launch new guidance which it says provides “clear and practical” steps to help faith-consistent investors work in partnership with the asset management industry.

Dr Rory Sullivan, CEO of Chronos Sustainability, who co-authored the publication says: “At the heart of this project is a framework to help Christian investors set clear expectations for the asset managers who enact their mandates. This creates alignment right through the value chain in terms of the systems and processes they expect managers to have in place, the specific issues they expect managers to consider, and the outcomes and impacts they expect managers to achieve.”

According to Sullivan the guide helps faith-consistent investors “send a loud signal to the wider global investment markets”, which not only supports Christian organisations but also any mission-based organisation seeking to align its investment to its principles and values.

Stephen Beer, CIG Chair of Trustees, says faith-based investors should not be underserved by an asset management industry, which is focused on broader sustainable investment without taking specific regard of faith.

“[The CIG] have faith in sustainable investment; but we also want our asset managers to more room for faith. The role of Christian ethics, as well as risk management, is important for church investors.”

 He adds: “Church investors should not have to make do with investment solutions which are not designed with Christian faith in mind. Our aim is to help members form long-term relationships with asset managers, built on mutual understanding, that enable both portfolios and humanity to flourish.”

Asset managers would do well to heed the guide from CIG since Christian investors are estimated to be worth an estimated USD1.75 trillion worldwide.

And their influence is growing.

A 2023 report from Morningstar reveals in increase in faith-based investing, which is dominated by Christian and Shariah-based funds. In recent months, Christian-based funds have consistently attracted more capital than Shariah-values funds, largely driven by US-domiciled investors.

In terms of focus, impact investing and contribution to achieving the UN’s Sustainable Development Goals (SDGs) are central to faith-based investing.

A report from the Global Impact Investing Network covering faith-based investors found that advancing human dignity and protecting the environment are often used to guide investment decisions.

The top three SDGs pursued through respondents’ faith-based portfolio were decent work and economic growth (81 per cent), affordable and clean energy (68 per cent), and reduced inequalities (68 per cent).

Oxford Saïd Associate Fellow Gayle Peterson, co-principal investigator leading The Oxford Faith-Aligned Impact Finance Project (OxFAIF), says: ‘Examining the role of faiths in impact finance is essential as more funds are needed to support efforts to address the world’s most complex problems. Protecting people and planet is consistent with the values and goals of the faith communities worldwide. More than 85 per cent of the global population is affiliated with a faith.

“We believe faith-aligned investing is a game-changer in creating opportunities to achieve sustainable development goals.”

As the importance of finance in achieving the green transition is emphasised at this year’s Climate Summit in Azerbaijan, the CFA Institute has released a report encouraging investors to better incorporate net zero goals into investment strategies.

The report Net-Zero Investing: Solutions for Benchmarks, Incentives, and Time Horizons argues that traditional performance evaluation practices “with the narrow focus of evaluating portfolio returns relative to a market index over short time horizons” present barriers to net zero investing.

Instead, investors should, according to Chris Fidler, Head of Global Industry Standards at CFA Institute, “look to adapt their strategies to meet both climate and financial objectives”.

He says: “Our research shows that managing the transitions [to net zero] requires more than just setting long-term climate targets. It involves integrating net-zero benchmarks, aligning incentives, and adopting suitable time horizons for meaningful progress. Without these changes, asset owners risk missing out on opportunities while failing to mitigate long-term systemic risks.”

The CFA Institute reports that for a net zero program to be fully effective, objectives and targets should be set for short-, medium-, and long-term periods. For example, to achieve net zero by 2050, the Net Zero Asset Owners Alliance (NZAOA) recommends absolute emissions reduction targets of 22 per cent to 32 per cent by 2025 and 49 per cent to 65 per cent by 2030.

The Institute says a net zero benchmark or scorecard should “fairly represent the asset owner’s net zero objectives and serve as a point of reference against which manager efforts are assessed”.

However, at present most managers are assessed and rewarded based on financial return rather than contribution to meeting net zero targets.

Fidler says: “Active managers who are incentivised under current conventions may not pursue investment actions that contribute to the net-zero goal, and they may even take actions that are counterproductive in search of immediate performance gains. For example, a holding that may not perform well over a longer time frame because of growing climate risk may outperform in the very near term. There is little incentive to sell the holding if the manager perceives that it can seize an advantage over the benchmark in the short term.”

Fidler concedes that asset owners “have limited ability to motivate changes in asset manager compensation models”, but argues they can set terms and compensation structures for specific mandates.

He adds: “When adding new incentives and fee structures to an investment mandate to motivate a manager to invest for net zero, it is important that the compensation component tied to the net zero objectives is sufficient. If the net zero incentive is too small relative to the manager’s fee, it is unlikely to motivate behavioural changes.”

The Institute recommends asset owners gauge how to size the compensation component tied to net zero objectives relative to the fees and risks of the asset class being managed.

“It is critical that asset managers see any changes in fee structure as a win–win,” Fidler says. “Novel fee structures on a net zero mandate are especially meaningful if they are embraced by the team responsible for the mandate.”

The CFA Institute points to the world’s largest pension fund – Government Pension Investment Fund of Japan (GPIF) – as an example.

GPIF pays four of its external passive managers to implement engagement activities to “encourage investee companies to increase their corporate value and the sustainable growth of the entire market from the long-term perspective”.

A report from consultancy bfinance reveals that more than three-quarters (78 per cent) of manager searches deemed diversity as irrelevant. Just 14 per cent believed DEI was significant and 8 per cent treated it as relevant.

These findings appear to contradict claims from 36 per cent of institutional investors who say they would be unlikely to hire an external manager that lacks gender and ethnic diversity.

Martha Brindle Senior Director, Equity at bfinance says: “A consistent large minority of investors have said that they’re unlikely to “hire an external asset manager who lacks gender and/or ethnic diversity. In practice, however, this intent does not necessarily translate into allocators’ manager selection activity, and this may be particularly true in certain asset classes and sectors.”

She adds: “This raises a question for asset owners: what happens when principles meet practices?”

Brindle says there are “various plausible reasons” why investors’ actions deviate from their principles.

“An allocator searching for a manager in a niche strategy area may primarily be concerned with identifying a sufficient number of credible candidates and less focused on diversity than may be the case when the allocator is selecting managers in a more conventional strategy area.”

This contrasts with broad tenders that maximise the universe of asset managers under consideration where DEI is generally seen as more important.

The focus on DEI is driven by various industry and academic studies that support the argument that diversity brings myriad benefits such as reduced ‘groupthink,’ stronger performance and improved risk management.

For example, WTW finds that investment teams in the top quartile of gender diversity outperforms those in the bottom quartile by 45 basis points a year.

Yet Fiyin Kosoko Senior Associate, ESG and Responsible Investment at bfinance, says the global asset management industry is “still struggling on this subject”, especially in key portfolio management and leadership roles.

In bfinance’s research, only 38 per cent of asset managers reported that more than 30 per cent of their management personnel are women. Just 11 per cent report that more than 30 per cent of their management personnel are from ethnic minorities.

“While there have been clear signs of progress, such as improved transparency on gender pay gaps, disparities relating to gender and ethnicity remain very much in evidence,” he says.

A separate survey published by Reboot this April finds that more than one in five (21 per cent) UK fund managers say that a lack of ethnic diversity in their workforce has stifled their ability to win over new clients.

The survey also found that more than two thirds institutional investors believe that employing people from ethnic minority backgrounds when selecting funds or awarding mandates will become more important for investment firms over the next five years.  

Kosoko says institutional investors should consider other facets of diversity such as socioeconomic background and educational profile, when assessing diversity but concedes these aspects remain less measurable.

Kosoko warns that DEI policies may be “largely symbolic and superficial”, and advises asset owners to look at mentoring programmes, recruitment practices, employee engagement surveys and strategy-level investment practices which give deeper insights into diversity.

Five pension funds – AP7 (Sweden); CDPQ (Canada); the Church of England Pensions Board (UK); HESTA (Australia); and USS (UK) – are leading the initiative which calls on governments to set new national targets; implement mandatory disclosure on nature for companies; establish regulation that addresses the five drivers of biodiversity loss; and develop and scale financial mechanisms for nature.

Laura Hillis, Director of Climate and Environment at the Church of England Pensions Board, says: “The tragedy of biodiversity and nature loss will not be solved by waiting for the market in the absence of strong environmental policies and regulations. For us as stewards of long-term retirement savings, bold action from government holds the key to protecting long-term prosperity and wellbeing for our beneficiaries.”

The coalition demands ambitious national targets, nature-related transition plans and commitments to halt and reverse biodiversity loss, with a focus on transformation of key sectors, stopping deforestation, and protecting and restoring critical ecosystems.

The investors also call for mandatory disclosure regulations for companies with material nature-related impacts or dependencies, as well as nature-related transition plans, with metrics strongly tied to biodiversity outcomes.

Thirdly, they want to see regulation that protects nature and biodiversity for all sectors that contribute to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services’ (IPBES) five drivers of biodiversity loss.

And finally, they want governments to invest in the development and scaling of financial mechanisms to protect and restore nature and biodiversity.

The demands come amid the Convention on Biological Diversity (COP 16) Summit held in Cali, Colombia which aims to mobilise private and public finance to protecting the world’s ecosystems.

Ahead of the summit, Colombia’s Environment Minister and President of COP16 Susana Muhamad said that the event would ensure “biodiversity is [seen] as important, complementary, and indispensable as the energy transition and decarbonisation.”

Bertrand Millot, Head of Sustainability at CDPQ, says the summit must build on progress made at earlier biodiversity summits.

“Since COP15 and the 2022 Kunming-Montréal Global Biodiversity Framework, biodiversity is becoming an increasingly relevant factor in the financial sector. It is crucial to bring together stakeholders to support the transition to a more sustainable and resilient world and we need more proactive policies from governments – and greater collaboration between public authorities and private sector players – to accelerate progress in biodiversity preservation.”

Research from Morningstar reveals global assets held in biodiversity open-end funds and ETFs more than doubled over the past three years to USD3.7 billion, boosted by product development. There are 34 such funds on offer, all domiciled in Europe.

However, the research notes that despite its rapid growth, the size of the biodiversity fund universe is dwarfed by the USD520 billion climate fund market.

Further, biodiversity funds have underperformed, on average, “but showed resilience in the 2022 market downturn”.

Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics, says: “It’s still early days for biodiversity investments. Strategies to execute on biodiversity objectives have proved difficult to develop, partly due to a lack of reported corporate data and standard metrics and because biodiversity is at the intersection of other more easily investible and better-known themes such as climate change, water, and the environment.”

However, Bioy adds: “Biodiversity is an emerging topic that investors can no longer ignore both as a risk factor and as an opportunity, particularly in the face of a changing climate and declining global habitat.”

This October’s Transition Finance Market Review (TFMR) aims to ensure the billions of pounds secured to support the green transition is put to work effectively and efficiently, or risk missing out on what McKinsey predicts could be worth GBP1 trillion annually for UK companies by 2030.

Vanessa Havard-Williams, Chair of the TFMR, says:“The industrial revolution needed to deliver the energy transition is a one in two-hundred-year event, and it presents significant opportunities, socially, environmentally and economically. The UK has the infrastructure, market and ambition to succeed, leveraging its capability as a commercial, financial and civil society leader.”

Havard-Williams identifies numerous obstacles standing in the way of effective investment, adding that the government must “act now to seize these opportunities and to unlock change not just for the UK, but also other nations working to meet the goals of the Paris Agreement”.

Havard-Williams warns that the UK will lose out in the “global race to provide the transition finance and technologies that the world needs”, unless it matches other markets in demonstrating that it is “serious, proactive and will stay the course”.

The TFMR identifies key barriers to scaling transition finance including a lack of long-term regulatory and policy certainty. Specifically, there is an absence of clear sectoral decarbonisation pathways and whole-of-economy national transition planning in the UK to support investment.

Second, and crucially for potential investors, TFMR says there is mismatch in the risk-return profile required by capital providers and the investible opportunities, particularly in the emerging technologies needed to secure the transition.

The TFMR notes challenges with assessing whether financing a particular activity or entity will have a credible decarbonisation impact.

There is also limited provision for transition activities and strategies in the UK’s sustainable finance regulatory regimes.

Finally, the risk of greenwashing and allegations of such continue to be a problem when financing activities or entities aimed at decarbonising high-emitting sectors.

The TMFR offers five key recommendations it says “provide a blueprint” for unlocking transition finance.

First, the UK needs national sectoral transition planning and policy certainty which will come from a renewed commitment to the Net Zero Council. Havard-Williams says the council will provide the necessary granularity in sectoral transition pathways, greater collaboration with industry, and a greater level of coordination across government.

Second is the establishment of a Transition Finance Lab to develop and test targeted financial solutions that will deliver the “effective policy, catalytic public capital, and public-private innovation”.

The TFMR also says relevant entities must align transition plans with the Transition Plan Taskforce. The Review says this is necessary if “widespread, credible and comparable transition planning is to achieve scale”.

Fourth, the Review adopts a Transition Finance Classification System and proposes Guidelines for Credible Transition Finance.

Havard-Williams says: “A principles-based approach to transition finance aids coalescence around core elements whilst enabling sufficient flexibility in other markets including emerging markets and for SMEs.” 

Finally, the review calls for a Transition Finance Council to ensure delivery of the Review’s recommendations, as well as supporting capacity building, collaboration, and coordination. 

Rosalind Fergusson, Senior Manager in Deloitte’s EMEA Centre for Regulatory Strategy, says: “The TFMR is an important report, but what matters now is how its recommendations are taken forward by the Government and other actors.”

She notes that the Financial Conduct Authority has already welcomed the report and will look at how best to embed the TFMR’s findings on ESG ratings, ISSB standards and its review of the sustainability-linked loans market.

She adds: “As firms look to 2030 and beyond, it’s important that they position themselves competitively and assess the opportunities the transition provides.”

The announcement follows the International Investment Summit 2024 which took place in London this week and resulted in pledges of GBP63 billion in private investment to support the UK’s infrastructure, renewable energy and technology projects.

Schroders announced a GBP50 million allocation from Homes England into its Capital’s Real Estate Impact Fund. The fund, which has an initial target of raising GBP200 million with the aim of ultimately delivering 5,000 homes to “address social inequality and deliver an appropriate financial return to investors”, expects to make its first investments before the end of 2024.

Peter Denton, Homes England Chief Executive, says: “This is a brilliant example of how public and private sector organisations can get behind a clear and common aim – namely supporting social justice and thriving communities.”

Meanwhile Man Group will invest GBP100 million in affordable and environmentally sustainable housing for communities across England.

Finally social impact property fund manager Resonance will commit GBP250 million into residential property to help tackle homelessness. Resonance has set a GBP1 billion target by the end of the decade which it says will support local authorities and housing partners across the country to “provide people at risk of homelessness with a stable home”.

Culture Secretary Lisa Nandy says: “These new funds provide a much-needed, fresh opportunity to work in partnership with impact investors, tackling some of the most pressing social and environmental challenges while driving economic growth.”

The government also unveiled significant investments in renewable energy projects including a GBP224 billion commitment to Scottish Power’s wind farms from Spanish firm Iberdrola over the next four years.

Further, Octopus Energy have committed to a GBP2 billion investment in renewable energy generation, including four new solar farms.

Despite declarations of success from UK government following the Summit, there are some who claim the event was a “publicity stunt”.

Douglas Grant, Group CEO of Manx Financial Group, says: “While we welcome the news and the shift in mood, the timing of Labour’s International Investment Summit raises some concerns. It feels like a classic publicity move, coming just two weeks before Labour’s first budget, which is expected to include tax hikes which will take some of the shine off the news.”

Grant questions the decision to “bundle all these positive investment deals together” calling it “contrived [rather] than the natural rhythm of investment”.

Meanwhile Oscar Warwick Thompson, Head of Policy and Regulatory Affairs at the UK Sustainable Investment and Finance Association, accuses Prime Minister Kier Starmer of “using sensationalist language around net zero”.

While welcoming the progress on investment in renewable energy, Warwick Thompson adds: “Also slightly concerning is the shift in political messaging around net zero. While the Prime Minister and his cabinet have been very positive about seizing the economic opportunities of green growth, Keir Starmer appeared to pit British industry against environmental progress, which is a false dichotomy.”

He continues: “The transition must be just, well-managed and in the interest of the public, but demonising climate activists for demanding progress borders on sensationalism. Mixed messages risk undermining the momentum of confidence the government has so far built behind the green transition.”

After eight years in the making, 100,000 Royal Mail employees will join a plan that the company says will provide them with “both an income for life in retirement and a lump sum, making it easier to manage their money in retirement”.

Just one day later the UK government announced a consultation on extending CDC which it says would mean millions of workers could benefit from “greater financial security in later life”.

CDC – which pools members’ contributions into a plan that aims to provide an income similar to that of defined benefit (DB) plans but without the guarantee – is only available to single or connected employers. The consultation will consider allowing unconnected multiple employer schemes to set up a CDC.

Part of the government’s motivation for revisiting CDC is an opportunity to drive pension investment towards projects that support the country’s growth plans.

Chancellor Rachel Reeves uses the Canadian pension system as an example, where funds from pooled pension contributions are invested into a wider range of private assets which she says “can benefit the wider economy and boost returns”.

“Extending CDCs could similarly allow for greater return on investment for those saving into the schemes and allow for larger investment in the UK – supporting the government’s growth mission to boost the economy,” Reeves states.

However, RMPCC is entirely unique and pension investment consultants say it may not prove the CDC inspiration Reeves hopes.

The plan was designed as a halfway house between the company’s existing DB scheme, which had become prohibitively expensive for the sponsor, and a DC alternative that was considered inferior by trade unions.

Paul Waters, Head of DC at Hymans Robertson says: “The Royal Mail’s scheme was designed around specific objectives and the way it’s been set up will not be the best path for all schemes thinking about CDC. Other employers will have their own individual objectives and profile of members, which means a range of different types of design will be needed to cater appropriately for different groups.”

This view is shared by independent pension consultant John Ralfe, who notes that while extending CDC is a foregone conclusion since it only requires “tweaks” to existing legislation, he adds that its appeal is limited.

“If you have already gone through the pain of replacing your DB scheme with a DC plan, why would you then switch to CDC? Meanwhile employers that still have DB have much better funding positions than they did when CDC was first touted, making them less likely to consider it.”

He continues: “Extending CDC is not going to make a whole lot of difference. There may be some employers to whom CDC appeals, but the jury is still out and I wouldn’t get too excited about it until we’ve seen half a dozen companies setting up an individual CDC,” Ralfe says.

Among those supporting the CDC consultation is John Ball, Chief Executive of the Church of England Pensions Board, who says the scheme is “scrutinising the detail” to see whether a CDC arrangement “might transform retirement plans for those who work for the Church”.

So far RMPCC has named just BlackRock as its investment manager and has yet to reveal any asset allocations or strategies.