This week’s announcement by a consortium of pension providers of an intention to increase domestic investment has been met with caution by pensions and investment experts.
The Mansion House Accord – an extension of the 2023 Mansion House Compact – will see 17 defined contribution (DC) pension schemes and providers investing an additional £25bn in UK private markets by 2030.
The agreement is voluntary, and signatories have made it clear that its success will depend on government and regulatory support for the creation of a strong pipeline of investable opportunities.
Initial reaction to the announcement from other organisations has been positive, but with clear warnings about the overarching importance of fiduciary duty.
Pension scheme members come first
Lou Davey, head of policy and external affairs at Independent Governance Group (IGG), said: “While we support the government’s commitment to UK growth, our legal obligation as trustees is to scheme beneficiaries, not the UK economy.
“Trustees are key to pensions playing a greater role in UK growth, so as government continues to develop policy in this area we would encourage collaboration with professional trustees and the wider industry.
“The government has made good progress on developing the framework to enable pension schemes to invest, including through the British Growth Partnership, but further clarity around the types of initiatives that government sees as a priority for investment is required.”
“To really drive improvements in member outcomes, we think savings adequacy needs to be addressed and we’re hoping to see [this] in the second stage of the government’s Pension Review.”
Mark Searle, XPS Group
“Increasing allocations to UK businesses through private markets can be achieved without compromising the fiduciary duty of a pension fund to its members,” said Tony Dalwood, chief executive officer at Gresham House, a specialist asset manager.
“The UK benefits from a strong network of specialist global asset managers with proven track records in UK investments, making capital deployment relatively seamless. These investments not only offer long-term financial returns but also support the government’s sustainability agenda.”
‘Spectre of mandation’ remains
Mark Searle, senior investment consultant at XPS Group, said it was “an exciting time” for private markets opportunities, and highlighted the “significant pipeline of assets” coming from maturing defined benefit pension schemes.
However, Searle added that XPS was “concerned about the volume of the supply of UK private market assets”.
The Mansion House Accord acknowledges this and has put the onus on policymakers to ensure that they create the right environment for high-quality unlisted assets to be developed.
“Mandating UK investment, in circumstances where providers had concluded that it was not in the best interests of savers, would be controversial.”
Michael Aherne, Herbert Smith Freehills
Michael Aherne, a partner in Herbert Smith Freehills’ pensions practice, warned that the “spectre of mandation” remained if the government was not satisfied with pension fund progress towards greater UK investment.
“The government could, via legislation, trump the fiduciary duty [of pension providers] but mandating UK investment, in circumstances where providers had concluded that it was not in the best interests of savers, would be controversial,” Aherne said.
Pension adequacy and the Mansion House Accord
Alison Leslie, head of DC investment services at Hymans Robertson, said her firm did not believe mandatory allocations would be “a good way forward”. Instead, the voluntary accord “signals a meaningful and purposeful way of putting to work billions of pounds of pension scheme assets”.
She highlighted UK-wide, regional and local investments made by the Local Government Pension Scheme and said there were “good opportunities to invest in the UK for DC savers”.
“The Mansion House Accord will deliver better member outcomes while supporting the economy that many savers will retire into,” Leslie continued.
“Too often the two ambitions are looked at in isolation, but we believe looking at this as a complete picture is necessary for both ambitions, and the developments today signal a big step forward in building UK saver pension pots for a UK worth retiring into.”
XPS’s Searle added: “To really drive improvements in member outcomes, we think savings adequacy needs to be addressed and we’re hoping to see comment on the balance between short and long-term savings get addressed in the second stage of the government’s Pension Review.”
Read the full text of the Mansion House Accord here.
