What is UK productive finance?

The phrase ‘productive finance’ is becoming increasingly prevalent in the financial vernacular. But just because a term has growing momentum behind it, doesn’t mean that it’s readily apparent what it means. To that end, we wanted to set out what productive finance actually is, why it’s so important, and how investors like L&G and our partners can deliver it.

The what: to what does productive finance refer?

While the term ‘productive finance’ pre-dates it, the acceleration in its usage in recent years can be traced back to the establishment of a working group on Productive Finance by the Treasury, the Bank of England and the FCA in November 2025.

Within this context, productive finance refers to a UK-centric, industry-led focus on channelling society’s capital – and pension capital in particular – into assets that seek to generate strong risk-adjusted returns, alongside delivering meaningful and tangible economic, environmental, and social benefits for communities, driving innovation and strengthening resilience in the real economy. 

The UK has deep pools of long-term institutional capital, world-class universities and a strong innovation base. What has too often been missing is the alignment between national frameworks, patient capital and local opportunity. That matters because all growth is, ultimately, local. 

Recent reforms to capital markets and pensions, alongside targeted supply-side measures, are unlocking new pathways for investment to flow, establishing the conditions for productive investment to grow at scale, target attractive returns, and deliver lasting economic impact.

Our latest work with Oxford Economics shows what is possible, focusing on six growth-unlocking policy levers that could expand and unlock long-term savings for investment in productive assets in the UK, and aid its deployment. This package of reforms could unlock up to £220 billion of additional investment over the next decade, permanently adding 0.7% to UK GDP by 2035.

The why: why is productive finance crucial?

Pension capital is not just a mechanism for saving; alongside other forms of long-term institutional capital such as insurance capital and sovereign wealth funds, it’s a powerful growth engine for investment.  We believe that investment in the places where our pension holders live can empower them to thrive – and target enhanced financial returns.  

As one of the UK’s largest pension investors, we believe in the UK economy and the role of long-term capital in helping to realise that potential. In particular, productive finance can help address the Mansion House commitments in DC and the need to invest ‘locally’ in LGPS.

Years of underinvestment in the UK has left significant pent-up demand across housing, infrastructure and regeneration. At the same time, structural barriers – such as planning delays, procurement, fragmentated regulation and limited early-stage funding have held back progress. Recent reforms have been designed to remove some of these obstacles, enabling more institutional capital to flow into projects that drive growth – and ultimately enabling people and places to prosper.

If the UK is to achieve sustained growth, we must mobilise long-term savings into the real economy: financing homes, infrastructure and innovation in the places where people live and work. We welcome recent government and market reforms, where the direction of travel is clear. Meanwhile, institutional investors are ready to commit long-term capital to UK growth; and local leaders are building credible pipelines. What is needed now is to match ambition with delivery. 

The how: how can companies like L&G support growth?

We are not new to this. L&G has been investing in productive assets in the UK for over 20 years and has a market-leading reputation for local investment from Newcastle and Sunderland down to Cardiff and Plymouth. 

Our appetite to invest in productive assets, and ability to create the channels and partnerships through which investment can flow, continues to grow. This means using the experience we have gained from managing our company’s balance sheet investments to improve access to productive assets for our clients.

We have committed £2 billion to regional impact investment by 2030, focused on housing, infrastructure and regeneration, which we expect to support around 10,000 new social and affordable homes and create approximately 24,000 jobs across the country. As part of this commitment, we announced a new investment partnership to deliver more affordable homes across the UK. Hyde Group, a not-for-profit housing, property and community services provider, that owns or manages 125,000 homes. 

The deal provides a clear blueprint for how institutional capital can be mobilised to fund social and affordable housing, demonstrating how long‑term investment – in this case through L&G’s annuity portfolio – can be aligned with national and local priorities to target attractive risk‑adjusted returns, generate durable cashflows and deliver meaningful social outcomes.

Different needs, of course, require different types of capital. Investment with an emphasis on cashflow or liability matching can be well suited to long-income assets like affordable housing, district energy networks or public-realm-linked infrastructure, where stable, long-dated cashflows are valuable. Elsewhere, higher-risk, higher-return capital can support earlier-stage development, innovation space, or new operating models. 

But capital alone won’t solve the most complex challenges or deliver the best outcomes.  For large-scale, place-based projects – such as regeneration or innovation districts – local partnerships are essential.  Local and combined authorities are central to this equation, as they set the ambition for their places and can identify the key projects required to deliver those ambitions.  

In a future article, we’ll discuss some real-word case studies of how L&G is putting UK productive finance into action. Lastly, but most certainly not least, we are embracing the greater flexibility around surplus extraction in DB schemes, while focusing on opening up opportunities for a broad range of DC schemes.

Where commercial needs meet communities’ 

Crucially, focus on UK productive finance is not about choosing between impact and returns. Well-targeted, socially oriented investments can target strong risk-adjusted performance precisely because they respond to genuine, persistent local needs. 

Housing that people can afford, infrastructure that communities rely on, and places designed for long-term resilience are less exposed to obsolescence and policy risk. Investment that considers how it interacts with society, is more likely to remain relevant over time. That is not just good citizenship; it is sound commercial logic.