Auto-enrolled defined contribution pension schemes, with £800bn of investments, are a huge success because bold decisions were taken by the government, regulator and, initially somewhat reluctantly, by the industry.

Key to the success has been soft compulsion and a price cap. Both ideas did not initially present a compelling case, but eventually the right path was chosen.

Last week, the House of Lords voted to block part of the chancellor’s Mansion House Accord. The Lords voted in favour of removing the “reserve power” from the pension schemes bill, which allows the government to direct where pension schemes choose to invest. This is despite tax advantaged cash Isas, SEIS, EIS and VCT being mandated to invest in the UK.

Meanwhile, the £70bn tax break for UK pension schemes has no mandation nor soft compulsion to invest in the UK. In this light, the government’s push to mandate that pension funds allocate at least 10 per cent of their default funds to private markets by 2030 is a positive step towards delivering growth, creating much needed job opportunities for young people and supporting investment in the UK’s fast-growing technology sector.

Between 1955 and 2005 the FTSE slightly outperformed the S&P; since 2005 the S&P has significantly outperformed the FTSE driven by the so-called magnificent seven tech stocks — all of which were venture capital funded.

In contrast, UK pension funds have for 20 years shied away from allocating investment into UK technology businesses. However, the UK market has now moved to a point where an organic shift in perception is underway.

This was achieved 20 years ago in the US. This UK failure to act resulted in all the world’s leading technology companies with trillion dollar market caps being in the US.

The government and the private sector have spent the past decade building a world-class foundation for early-stage innovation. Today, these high-potential, genuinely commercial UK companies are ready to expand — often internationally — but lack access to UK scale-up financing.

Inevitably, this means looking abroad to raise capital from US or Asian investors. By partnering with fund managers now, it is estimated that pension funds can unlock up to £75bn in additional investment, providing the financing these firms need and, in turn, capturing long-term value for the British economy.

With three of the top 10 global universities and a world-class research base, the UK offers a unique foundation for innovation. Combined with streamlining the spinout process for academic start-ups, we have created an ecosystem that can transform world-leading science into globally competitive firms. This is a necessary but not yet a sufficient proposition for pension funds.

US and Canadian pension funds have spent decades reaping the benefits from private equity and VC.

Decades of investment have led to rapid growth in entrepreneurship and innovation amongst both students and experienced professionals, particularly in frontier sectors such as AI, quantum computing, and semiconductors.

Today, we see the maturation of this patient capital: many of the companies emerging from our technology hotspots have been in gestation for 10-15 years. These companies are built upon deep, defensible technologies rooted in world-class UK research.

The Cambridge cluster is a case in point. With the University of Cambridge at its heart, it is a hub for more than 4,700 knowledge-intensive firms that generate £25bn in turnover. It’s been named the world’s most knowledge-intensive science and technology cluster and is home to 26 unicorns.

Pension funds looking at the Cambridge cluster won’t just be buying into individual companies, but rather investing in a proven system of innovation with a demonstrable track record of turning academic breakthroughs into world-leading businesses.

Not only does this have the potential to boost returns, but it would also have a societal impact by bringing technologies to market that will shape our future.

For institutional capital, the growing potential of the UK ecosystem provides a robust and accessible route into long-term, attractive returns from some of the most transformative and innovative technology companies of the future.

An additional £20bn-£30bn a year of domestic institutional investment would provide the vital follow-on capital required for companies with proven technologies to scale.

By closing the late-stage funding gap, the UK can retain its most successful businesses, ensuring that the high-growth returns of British innovation directly benefit the domestic economy and UK investors rather than flowing to overseas stakeholders, for example ARM and Solexa.

US and Canadian pension funds have spent decades reaping the benefits from private equity and VC. The UK is poised to capitalise on a similar opportunity. This shift should not require mandation, but it is probably best served by a soft compulsion where individuals have the choice of opting out but with encouragement to opt in.