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The UK’s state-backed pension scheme has agreed a tie-up with insurer Legal & General and Dutch pension fund manager PGGM to invest up to £1bn in build-to-rent properties, in a deal hailed by the UK government as an example of how the country’s retirement savings can be directed towards its homebuilding effort.
The groups are today announcing a partnership with an initial £350mn commitment of combined investment, expected to grow to £1bn in the coming years, to build and manage rental properties on city-centre brownfield sites. It expands on an existing joint initiative between the UK insurer and the Dutch group.
“We can see there’s a critical shortage of housing supply, coupled with increasing demand for high-quality rental homes,” said Elizabeth Fernando, chief investment officer at Nest, the state-backed UK workplace pension fund, which now has assets of £43bn from its 13mn savers.
The tie-up comes as the UK government seeks to unlock billions of pounds of investment from the country’s pension funds to boost the economy.
In July, the government announced the first part of its pensions review. Policymakers have long sought to encourage more pension investment in areas such as infrastructure and housebuilding.
UK pensions minister Emma Reynolds said the announcement “highlights the opportunities for our pensions sector to contribute to our communities and grow the economy”.
“By building more properties, we can extend to our [scheme] members a great investment opportunity while helping to meet this demand and bolster the rental market,” said Nest’s Fernando.
Increasingly, the focus is on so-called defined contribution pension schemes, which are now the mainstream offering for private sector workers, and where the investment risk sits with the saver.
Nest, a DC scheme, was established to support the 2012 auto-enrolment reform that required employers to enrol all eligible workers into a workplace pension scheme.
After feedback from its members saying more than half were not sure how much of their savings were invested domestically, it plans to publish a quarterly summary.
L&G has plugged £3bn of capital into the build-to-rent sector, creating more than 10,000 rental homes since it began a partnership with PGGM eight years ago.
The groups said locations for the investment had already been identified but did not name them. PGGM said it would generate stable financial returns for its client PFZW, a pension scheme for healthcare workers.
L&G chief executive António Simões said the latest deal was a “strong step forward in putting pensions to work” and he highlighted the significant gap between housing supply and demand. “Institutional investment has an important role to play, and we expect investor demand in the UK’s build-to-rent sector to continue to grow,” he added.