An allocation to professionally managed illiquid assets could boost defined contribution (DC) pensions by 10 per cent at retirement, according to JLT Employee Benefits.
The firm suggested a 20 per cent exposure to illiquid assets such as private equity, infrastructure or real estate, could enhance diversification and generate additional return.
The comments come after the Department for Work and Pensions issued a consultation on how to direct some of the £60bn held in defined contribution pension schemes into alternative illiquid investments to boost the UK economy.
The consultation followed the announcement in the last Budget that the Chancellor was to allow DC schemes to invest in British businesses under the patient capital initiative.
Analysis by JLT Employee Benefits found those in DC default funds have a much lower need for liquidity as a result of the long time horizons to retirement.
Maria Nazarova-Doyle, head of DC investment consulting at JLT Employee Benefits, said: "The focus on daily-dealt funds with near 100 per cent liquidity is a fundamentally impatient approach to DC.
"Many default strategies are currently failing to adequately diversify investments, precluding savers from the valuable illiquidity premium that can be accessed through alternatives.
"The pensions industry and the government have recognised that current short-termism is misaligned with the long-term horizons of DC savers, but it is now time for decision-makers to work collaboratively and take action to bring the benefits of illiquid alternatives to DC defaults."
However, the firm also stated that manager selection remained critical because of the large dispersion of returns within the alternatives space, as well as liquid alternatives being hard to value in certain market conditions.
Martin Bamford, chartered financial planner at Informed Choice, said: "When carefully selected and managed, allocating part of a pension portfolio to non-traditional investment assets can help to improve diversification, lower overall risk and boost returns.
"The trouble is these alternative assets tend to be illiquid and riskier when viewed in isolation, often making them unsuitable for individual investors.
"We see college endowment, sovereign wealth and corporate pension funds use them with some success. Getting access to the best opportunities in infrastructure investment, which are often reserved for government money, is the biggest challenge."
Adrian Lowcock, head of personal investing at Willis Owen, added: "Alternatives such as private equity, infrastructure and real estate are under-utilised investments because they require a long term investment timescale and a lot of patience – with a lack of liquidity being a deterrent.
"However they offer huge diversification benefits as they tend to not be as correlated to equites and bonds which can help deliver a better return for investors.
"Of course with all of these calculations it is a case of averages (it is hard to predict the future accurately), but it isn’t the return itself investors should consider but the risk they are taking to achieve the returns. Exposure to alternatives will help reduce risk of a portfolio and around 20 per cent in such areas can add a lot of value to a portfolio."