Despite months of lobbying, an investment mandation clause still made it into the Pension Schemes Act. Gavin Ellison of law firm Womble Bond Dickinson looks at what the new law says and what it means for master trusts.
As the dust settles on the Pension Schemes Act 2026, I have found myself asking the question: what does the now scaled-back mandation powers on pension scheme asset allocation really mean for trustees and pension scheme investment?
The answer, as always, has multiple layers.
First, it is important to remember that the mandation powers found in the Act only apply to defined contribution (DC) multi-employer arrangements (broadly group personal pension schemes and master trusts) used for auto-enrolment purposes. Trustees of own-trust occupational DC schemes and defined benefit schemes are not affected.
For trustees of DC master trusts, the position is more complex. Their fiduciary duty to act in the best interests of members remains paramount when setting the investment strategy for the main default funds of the scheme.
Overlaying this is the Mansion House Accord, a voluntary arrangement whereby 17 DC providers and master trusts (covering 90% of active DC pensions) have pledged to invest 10% of their portfolios in unlisted assets (including unlisted equities, property, private credit and infrastructure) by 2030, with half of this earmarked for the UK.
What the reserve power means
If the Mansion House Accord does not deliver the government’s desired outcome, there is now a reserve power under the Act (albeit narrower in scope than originally proposed and now subject to additional safeguards).
This allows the government to require trustees of DC master trusts to invest up to 10% of the main default funds of the scheme in ‘qualifying assets’ (namely private equity, venture capital, private credit, interests in land, infrastructure and unlisted equity securities not falling within the previous categories) and up to 5% of such funds in UK assets.
If this mandation power is operated, it will, by definition, override trustee investment duties under common law and, as expressly catered for in the Act, any contrary provisions in the scheme rules.
In an ideal scenario where:
- appropriate opportunities are available for trustees to invest in ‘qualifying assets’ that are aligned with their overriding fiduciary duty to act in the best interests of members;
- there is an easing of any perceived regulatory burdens; and
- any liquidity challenges in investing in ‘qualifying assets’ are effectively managed,
… the pledge set out in the Mansion House Accord should be deliverable with the reserve mandation power effectively sitting in the background, unused, and lapsing in line with the statutory sunsetting provisions by 2032.
Safeguards and guardrails
Where scheme asset allocation does not deliver the targeted investment outcomes in ‘qualifying assets’ and the government resorts to using the mandation power, there are safeguards under the new statutory framework that will, to varying degrees, protect trustees.
“A path of enabling and supporting trustees to fulfil the Mansion House Accord pledges voluntarily remains the preferred outcome for all.”
Gavin Ellison, Womble Bond Dickinson
For example:
- The power can only be used once and then only from 1 January 2028 onwards.
- An assessment would need to be undertaken by regulators on whether market conditions are limiting investment in ‘qualifying assets’.
- The government would additionally need to assess progress made against the Mansion House Accord targets, any perceived barriers (and the steps taken to address these), and how the financial interests of members would be affected by the use of the power.
Importantly, the Pensions Regulator (TPR) will play a role in being able to disapply the asset allocation requirements where, on application from a scheme, it considers it reasonable for the trustees to conclude that meeting the requirements is likely not to be in the best interests of scheme members.
In principle, this appears to be a helpful check and balance, but its practical application will depend on the scope of subsequent regulations and guidance from TPR.
Trustees should take some comfort in the guardrails included in the Act, but some concerns are likely to remain. A path of enabling and supporting trustees to fulfil the Mansion House Accord pledges voluntarily remains the preferred outcome for all.
Gavin Ellison is a partner at Womble Bond Dickinson.
