Rise of DC pension funds poses property investment problem: Pension industry urges chancellor to change rules curbing DC funds' investment in illiquid assets like property.

Defined-contribution (DC) pension schemes are growing in the UK, while defined-benefit (DB) pension schemes are declining. This shift is impacting the property sector, as DC schemes are less risky and complex for companies to manage. However, there are obstacles preventing DC funds from investing in illiquid assets like property, and the Association of Real Estate Funds (AREF) is calling for the government to address these issues. AREF is proposing a move from an Individual Account model to a Collective DC model, where contributions are pooled and invested collectively. The decline in DB funds' property investment could lead to more international investors entering the market, but they may focus on larger assets in major cities rather than smaller regional projects. Some UK DC schemes are considering allocating capital to illiquid assets to improve outcomes for members, and the government supports greater investment in illiquid asset classes. The Financial Conduct Authority, Bank of England, and HM Treasury have recommended measures to encourage investment in illiquid and longer-term assets, including the creation of the long-term asset fund (LTAF). However, there are challenges to the LTAF, and these issues need to be addressed to fully unlock the benefits of DC investment in real assets. The chancellor is expected to use the Autumn Statement to maximize the benefits of DC pension funds and other sources for investment in commercial real estate and infrastructure. [Extracted from the article]