Defined contribution pension schemes could plough £170bn into UK property by 2030, according to the first major academic analysis of the impact of auto-enrolment on real estate allocations.
The study by the Pensions Institute at Cass Business School found that several new DC schemes designed for auto-enrolment have selected real estate as the first illiquid or “alternative” asset class to be incorporated as a core component of default funds, with an average weighting of 10%.
More than 90% of scheme members are likely to use default funds, it said.
Projected growth of the DC market in the UK, thanks to auto-enrolment, suggests this trend will be adopted widely, raising the possibility of a significant increase in real estate assets under management.
The report, Returning to the Core: Rediscovering a Role for Real Estate in Defined Contribution Pension Schemes, forecast a sixfold increase in property assets under management by 2030.
The study suggested that barriers such as daily pricing, liquidity, communication and costs could be overcome, as demonstrated by the National Employment Saving Trust’s decision in 2013 to allocate 20% to real estate in both its principal and ethical default funds.
Once considered a core asset class alongside equities and bonds, real estate since the 1980s has been reclassified as an alternative asset class and investment allocations declined, standing at 0% to 5% today for most DC schemes.
The study also found that nine of the top 10 providers in the auto-enrolment market use their own in-house funds for real estate investment, meaning that at present it is not an open market for third-party asset managers.
It suggests establishing cross-practice working groups to bring together experts from the DC auto-enrolment and real estate management industries to address the issues identified.
Jack.Sidders@estatesgazette.com
