UK pension providers sign up to double private sector investment but risks remain

Seventeen workplace pension providers have signed up to the voluntary initiative, known as the Mansion House Accord, which commits signatories to investing at least 10% of their defined contribution (DC) default funds in private markets by 2030, with at least 5% of the total going to investment in the UK.

The agreement builds on the Mansion House Compact, which was launched in 2023 under the previous Conservative government and saw 11 pension funds committing to investing 5% of their DC default funds in unlisted companies by 2030, but with no stipulation to keep the investments in the UK.

The Treasury expects the deal to unlock up to £50bn of investment for UK businesses, major infrastructure projects and clean energy developments, with around £25bn expected to be released directly into the UK economy over the next decade.

The agreement has been jointly led by the Association of British Insurers (ABI), the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation. Signatories to the new agreement include: Aegon UK, Aon, Aviva, Legal & General, LifeSight, M&G, Mercer, NatWest Cushon, Nest, Now Pensions, Phoenix Group, Royal London, Smart Pension, the People’s Pension, SEI, TPT Retirement Solutions and the Universities Superannuation Scheme (USS).

For those providers already signed up to the Mansion House Compact, the government has said progress under that agreement will count towards meeting the new accord’s goals.

Pensions expert Tom Barton of Pinsent Masons said the agreement marked a significant development for the sector. “A large part of the DC provider and master trust world is now on board with the idea of minimum allocations to private markets – outside of any formal legal framework,” he said. “Others can still fall in line, of course, but without having made the public commitment to do so.”

There have been reports that the government may introduce legislation that would eventually require all pension funds to sign up to the new commitments.

Ahead of the government’s highly anticipated pensions investment review, which is expected to be published this spring, pensions expert Katie Ivens of Pinsent Masons said it is critical that any existing signatories focus on aligning these new commitments with their fiduciary and consumer duties, whilst bearing in mind that the government may yet move this commitment onto a mandatory footing.

“Whilst the accord is voluntary and subject to various factors, including fiduciary duty, consumer duty and the government facilitating access to a suitable pipeline of investment opportunities, the government has expressly stated that progress against the new commitment would be ‘monitored and the initiative will be reinforced by measures to be announced in the upcoming final report of the pensions investment review’,” said Ivens.

For now, Barton said the accord’s success hinges on the creation and sourcing of suitable investable opportunities,” he said. “Investment advisers have a part to play. The government has a part to play too. As part of its side of the bargain, the government also needs to deliver a sensible framework on value for money, scale and consolidation – taking account of weaknesses and issues flushed out through the consultation. This is a delicate balance.”