A group of 17 workplace pension providers are signing up to a voluntary initiative with the aim of boosting savers’ investments and UK growth.
The Mansion House Accord aims to help defined contribution (DC) pension savers by harnessing higher potential net returns available in private markets, as well as strengthening investment in the UK.
Those signing up commit to allocating at least 10% of their DC default funds in private markets by 2030, with at least 5% of the total allocated to the UK, assuming that there is a sufficient supply of suitable assets.
The UK Government said £25bn could be released directly into the UK economy by 2030, adding that some pension funds have already indicated privately they will go beyond the targets agreed through the accord.
The commitment is subject to fiduciary duties as well as the Consumer Duty, which requires financial firms to put consumers at the heart of their products.
Workers are often placed into a DC pension pot under automatic enrolment. The size of the pension pot they eventually end up with depends on factors such as how early they start saving, how much they put in and investment performance.
The initiative has been jointly led by the Association of British Insurers (ABI), the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation.
Based on providers’ current investment holdings, total pension assets in the scope of the agreement amount to £252bn. The industry expects this amount to increase over the accord’s lifetime.
Those signing up are: 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).
Despite being part of an earlier version, Scottish Widows has not signed up, instead stating that it has set up a separate asset fund which it hopes to unveil by the end of the year.
The initiative builds on the Mansion House Compact, which was signed in July 2023 and saw 11 UK pension providers committing to the aim of investing 5% of DC defaults in unlisted equities, including venture capital and growth equity, by 2030.
For providers who have signed up to both, progress under the compact counts towards meeting the goals of the accord.
Chancellor Rachel Reeves said: “I welcome this bold step by some of our biggest pension funds, which will unlock billions for major infrastructure, clean energy, and exciting start-ups – delivering growth, boosting pension pots, and giving working people greater security in retirement.”
Pensions Minister Torsten Bell said: “Pensions matter hugely, they underpin not just the retirements we all look forward to, but the investment our future prosperity depends on.
“I hugely welcome the pensions industry decision to invest in more productive assets, from growing companies to infrastructure. This supports better outcomes for savers and faster growth for Britain.”
Yvonne Braun, director of policy, long-term savings, health and protection at the ABI, said: “As major investors, the pensions industry already plays a vital role in driving growth in the UK and globally.
“The accord formalises the industry’s ambition to invest more in private markets to diversify investments, support innovation and infrastructure, and ensure prosperity.
“Investments under the accord will always be made in savers’ best interests, but it is now critical that Government supports the industry’s ambition, by facilitating a pipeline of suitable investment opportunities, tackling barriers to investments, and delivering wider pension reforms effectively.”
Andy Briggs, Phoenix Group chief executive, said: “The new commitments have the potential to strengthen the economy by fuelling the growth of British businesses and boosting investment in critical infrastructure.”
Ben Pollard, chief executive, NatWest Cushon said: “The investment case for UK private markets is strong, which is why we are a signatory to the Mansion House Compact and have also signed up to the new Mansion House Accord.
“But there is another positive angle – reconnecting people with the investments their pension is making – these types of investments are real and tangible and show savers how hard their money is working to improve their standard of living in the UK.”
Meanwhile, Jason Hollands, managing director at wealth management firm Evelyn Partners, opined that the move could lead to improved returns for pension scheme members, sizeable allocations to illiquid investments are not without risk.
“The gnawing concern is that this ‘voluntary’ commitment is really a case of the government wielding a stick rather than offering a carrot – unless the UK pensions industry has suddenly become a lot more bullish on private markets in the space of two years?
“Also, could this be the thin end of the wedge in terms of the government trying to co-opt pension funds into helping drive its objectives? However desirable those objectives might be – like boosting economic growth – from a public policy lens, the fear is that pension schemes could be distracted from the interests of the end saver, which should be their primary concern.“
He pointed out that pension schemes have a fiduciary duty to deliver risk-adjusted returns for their members, not serve domestic public policy goals.
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