While UK investors have been locked out of a $2 trillion asset held by global institutions and regulated investment products, the UK government seeks to steer our pensions into illiquid, opaque funds that mirror the very risks regulators claim to protect us from.
The FCA ruling announced this week on the Woodford case got me thinking. Nearly six years have passed since the suspension and collapse of the Woodford Equity Income Fund – a fund that promised daily liquidity to retail investors but became critically exposed to illiquid private company holdings. The £230 million redress scheme now agreed by the FCA will bring some relief to those affected. I speak from experience, as I was among the thousands of individual investors left holding a fund that had quietly strayed far from its original mandate. The assets couldn’t be sold quickly enough, redemptions were frozen and like many others, I watched value disappear while the process unravelled behind closed doors. The irony is not that the fund failed, but that this same approach to risk is now being promoted at scale by the Chancellor, Rachel Reeves, who is urging the country’s pension schemes to allocate more capital to private equity and other long-term illiquid assets. Her thesis is that this will drive growth in the UK economy.
Led by Donkeys?
It is deeply frustrating to watch, as a government front bench lacking the commercial experience and expertise for such responsibility, is now making non-trivial policy decisions – not just on the UK economy, but on the savings and investments of ordinary citizens. In researching for this article, I confirmed a consistent theme from multiple analyses, highlighting that the Labour cabinet includes virtually no members with track records of running private businesses or holding senior roles in commerce or industry. Cabinet members are overwhelmingly career politicians, public-service professionals, union figures or legal experts. Multiple commentators have noted that no member of the Labour cabinet has ever founded their own business or even worked in the private sector.
I fear this policy direction reveals a misunderstanding of liquidity, time horizons and the purpose of pensions. Private equity is generally illiquid, opaque in valuation and highly dependent on favourable funding conditions. It has of course played a role in institutional portfolios for many years, but returns show that the asset class no longer consistently outperforms public markets. Recent studies have highlighted that median private equity returns are now converging with public benchmarks once fees are accounted for. The US tech sector, by contrast, has delivered outsized returns in public view, available to anyone with a low-cost tracker or brokerage account, with high liquidity.
The Missed Opportunity
However, most disappointing is the longstanding exclusion of high-performing alternative assets like Bitcoin from UK pension access, despite widespread adoption by global institutions and ETF approvals in the US. If the aim is to improve pension outcomes and to unlock growth, then risk needs to be matched with access, and returns with reality. Conversely, the UK authorities have presided over a system that restricts individual investors from owning liquid, transparent, high-growth assets, while now encouraging exposure to long-locked private funds with return profiles far less certain than the narrative suggests.
In 2020, the FCA instituted a ban on the sale of crypto derivatives to retail consumers due to concerns about market integrity and investor protection. However, rather than focusing attention on bad actors and genuine examples of malfeasance, the FCA’s unwillingness to support clear or thoughtful regulation of the asset class has “protected” UK retail investors from Bitcoin’s unprecedented price appreciation over the last 5 years. Ironically, this has driven record numbers of UK retail investors into shares of Microstrategy, Inc (MSTR) – effectively a leveraged play on Bitcoin – to gain exposure to Bitcoin’s price gains. Bitcoin – an asset with no counterparty risk, fixed monetary policy and full auditability – has been off-limits for pension wrappers and ISAs in the UK, despite the US approving spot Bitcoin ETFs back in January 2024, when the Bitcoin price was $40,000. Thankfully the FCA is finally lifting the ban in October 2025, but with Bitcoin already trading between $115,000 and $123,000, it is hard to ignore that while the US moved early and captured much of the upside, UK investors were locked out by their own regulator. Once again, access being permitted only after the window of asymmetric returns has begun to narrow.
The Harsh Truth
The debate over what constitutes an acceptable pension investment would be more credible if it were set against a backdrop of fiscal prudence, and by that I am not referring to the restrictive and somewhat anachronistic fiscal headroom rules that Rachel Reeves has handcuffed herself with. Behind the Jedi mind trick that our politicians (of all parties) use to spoof the public, the harsh truth is of the utmost concern. The UK’s pension obligations are among the least sustainable elements of its long-term balance sheet. According to the Office for National Statistics and the ICAEW, the UK has more than £2.6 trillion in public sector pension liabilities, of which around £2 trillion is unfunded. This means the promises are not supported by investment assets, but by future taxation. Add to this the State Pension – whose liabilities are not formally included in government accounts, but which independent modelling places in the range of £6-8 trillion – and the scale of the problem becomes clear. The UK is running a system with £9-10 trillion of unfunded age-related liabilities, backstopped not by assets, but by political promises and monetary debasement.
The Debt Doom Loop
Last week Ray Dalio, founder of Bridgewater Associates and one of the world’s most respected macro investors, described the UK as being caught in a ‘debt doom loop.’ In his assessment, rising public debt is fuelling a cycle of higher taxation, declining productivity and stagnant growth, with no credible escape plan in sight. “You can’t get out of a debt crisis without growth,” he warned, adding that the UK risks a future of “low productivity, low growth and increasing debt” if it continues down its current path. His concern is that without structural reform and meaningful investment in innovation and enterprise, the only remaining levers will be ever-higher taxation and continued currency debasement – both of which risk driving capital out of the country and exacerbating the problem they are meant to solve.
The backdrop to all this is a persistent inflation problem, itself a symptom of the monetary policy response to years of structural stagnation and a pandemic shock that unleashed stimulus on an unprecedented scale. For a time, that stimulus was politically convenient. Now, the consequences are catching up. The Bank of England finds itself cornered, unable to raise rates meaningfully without destabilising government finances, but equally reticent to cut without reigniting inflation. Savers find themselves penalised, not just by inflation itself, but by the slow erosion of real returns, higher taxes and fewer viable long-term investment options.
Once Bankers, now Politicians
Many readers, like myself, will remember events in 2008. As an investment banker at the time, I recall the prevailing criticism that the financial system had allowed banks to privatise gains while socialising losses. Risk was taken by one party and the fallout borne by another – the taxpayer. Today, that dynamic has reversed. It is public sector workers and politicians who enjoy state-guaranteed, inflation-linked pensions, while the risk is increasingly shouldered by the private sector. Savers face tighter controls, rising taxes, restricted investment access and a real-term erosion of capital. The mechanisms have changed, but the principle is the same: a system that allocates upside to one group while distributing the burden elsewhere.
The Pension Exodus
It is no surprise then, that the great pension outflow is already underway. According to HMRC’s latest figures reported this week, over £13 billion has been withdrawn from UK pensions in the first half of this year, showing withdrawals up 24% in the first quarter of 2025 alone. The primary driver? Uncertainty surrounding future tax raids, particularly around inheritance tax and pension entitlements under the new government. People are voting with their money. They no longer trust the system to deliver the retirement security it once promised – and for good reason. Added to a not inconceivable threat of government default on the state pension in years to come, it’s a scary time to be planning for our futures.
So where do we go from here?
At the very least, we should acknowledge that long-term savers need a genuine alternative; something that doesn’t rely on political will, central bank policy or accounting opacity to preserve value. Bitcoin, for all its detractors, increasingly fits that description. It is now a £1.8 trillion asset class, widely held by tier-one institutions, embedded into regulated ETF structures and recognised by financial regulators across multiple jurisdictions. The US moved first and designated it a strategic reserve asset of national significance. Others are following and even the UK, belatedly, is lifting its ban on spot Bitcoin ETFs. Increasingly, leading figures in the world of finance are advocating for Bitcoin in a diversified portfolio, with suggested allocations ranging from 2–5% (Larry Fink, Blackrock CEO) to as much as 10–15% BTC/Gold (Ray Dalio) as a long-term hedge against currency debasement and systemic financial risk.
The Right to Choose
There will of course be many who disagree and who would challenge such an investment thesis, but that is every individual’s prerogative. My argument is more nuanced. In a liberal democracy, we should retain the right to make our own investment decisions, rather than being either restricted from or railroaded into certain asset classes. A Bitcoiner would make the case that Bitcoin’s value lies not only in its technology or ideology, but in its monetary structure. Its supply is capped, its issuance is transparent and it is not dependent on quarterly earnings reports, management incentives or discount rate gymnastics. It is a store of value precisely because it does not require belief in any single person or institution – just confidence in scarcity, supply and demand dynamics, and the strength of the network. Of course, none of that guarantees short-term price stability or a promise of an uninterrupted upside. Bitcoin is a volatile ride, but what it does offer is a radically different foundation on which to build long-term value; one that is increasingly hard to find elsewhere in a world of monetary debasement, tax asymmetry and creeping capital controls.
The Greater Risk
By contrast, the private equity model now being pushed towards UK pension portfolios relies on illiquid holdings, infrequent valuations, high leverage and layers of fees. Investors are expected to accept reduced access to their capital, limited transparency and a leap of faith that favourable exit conditions will prevail a decade from now. Even the best funds expect many of their bets to underperform in the hope that the occasional big winner delivers fund performance.
The real question for investors and policymakers is this: which carries the greater risk? A fixed-supply, digitally scarce asset, with 24/7 liquidity and global demand rapidly outpacing supply? Or a locked-up portfolio of private companies, valued behind closed doors, lacking mark-to-market discipline and offering no certainty of exit?
