Good pensions finance good infrastructure. Good infrastructure pays for good pensions. This crucial relationship only gets noticed when they both go missing — as the US, UK and several other countries are finding out. Having largely dismantled the defined benefit corporate pensions of yesteryear, they now struggle to turn fragmented individual pensions into the long-term investments their savers and their economies require. Fixing this is vital. It will not be easy.

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Given the human lifespan, pension savings are the natural source of capital that can be tied up for 30, 40 or 50 years. In return, they earn the premium that comes from volatile or illiquid assets, which is all the more valuable when interest rates are low. But as Bank of England governor Andrew Bailey noted in a speech, something has gone wrong. “We live in a time where there appears to be no shortage of aggregate saving, but investment is weak,” he said. UK pension funds allocate just 3 per cent of their resources to unlisted equity.

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The UK hopes to address this problem by easing regulations, allowing defined contribution pension funds — where individuals bear the investment risk — to hold more illiquid assets, and loosening caps on fees to allow for complicated investments such as infrastructure. But even if such changes have no unintended consequences, they will not address the fundamental challenge of a fragmented pension system, where decisions fall to individuals and it is hard to link their lifespan to the assets they own.

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