The bosses of 17 of the UK’s biggest pension funds have struck a deal with the government that it claims will release up to £50bn worth of investments, with at least half earmarked for British assets including clean energy projects and homegrown startups.
Fund managers including Aviva, Legal & General, M&G, Phoenix and the Universities Superannuation Scheme have agreed to sign a new “Mansion House accord” that will lead to at least 10% of their workplace pension schemes being invested in private market assets by 2030.
Half of that money (5%) will be earmarked for UK investments, including stakes in private British businesses, property and major infrastructure projects, all areas of focus as the governmenttries to kickstart the economy.
The new accord doubles the size of commitments made undera deal arranged by the Conservative government in 2023,known as the Mansion House compact. Led by the then chancellor, Jeremy Hunt, signatories agreed to allocate 5% of funds to private assets, with no stipulation about keeping any of that money in the UK.
The chancellor, Rachel Reeves, said: “We are choosing to back British businesses and British workers. I welcome this bold step by some of our biggest pension funds, which will unlock billions for major infrastructure, clean energy and exciting startups.”
However, some pension fund providers are understood to be wary about any government efforts to force firms to put money into British assets, which could result in poorer returns for retirees compared with overseas investments, possibly breaching their fiduciary duties to clients.
While the accord itself does not mandate UK investments, there are concerns that the pensions bill, due later this year, could leave the door open for the government to dictate how fund money is used.
Zoe Alexander, the director of policy and advocacy at the Pension and Lifetime Savings Association, said the government, for its part, had “committed to take action to ensure there is a strong pipeline of investable assets for pension schemes. With everyone playing their part, there is great potential to boost returns for savers while providing vital funding to productive growth areas.”
The voluntary pact covers signatories’ defined contribution pension schemes, which do not guarantee a set income at retirement, and are the default plan for most UK workers.
The 17 signatories, which also include Aegon UK, Aon, M&G and Mercer, manage combined portfolios currently worth £252bn, suggesting UK investment commitments worth just £12.6bn.
However, the government’s calculations predict those portfolios will grow by about 17% per year, and possibly further under government pressure to consolidate retirement schemes into national “megafunds” that are intended to replicate success stories in Canada and Australia.
The Treasury believes that will leave the pension providers with portfolios worth £740bn by 2030, and roughly £50bn of new funds for private market investments, when discounting for existing commitments. Around half that – £25bn – would therefore be aimed at UK projects and startups.
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Many pension providers already allocate funds to private assets, including in the UK, meaning that it may not necessarily lead to a large injection of cash from individual pension providers.
The Mansion House accord comes as the government tries to tackle concerns about a lack of domestic investment in the UK. But the Treasury has been juggling competing interests, with lobbyists also calling for reforms that could simultaneously boost ownership of stock-exchange listed companies.
London lost out on a raft of blockbuster listings in recent years, including by UK chip designer Arm, which opted to list on Wall Street in August 2023.The buy now, pay later company Klarnafollowed suit, while other companies such as Paddy Power owner, Flutter, and the travel company Tui opted to switch their primary listings from London to rival hubs such as New York and Frankfurt.
However, the metals investment company Cobalt Holdings bucked the trend on Monday,announcing plans to float in London in June in a rare boost to the UK stock exchange. Cobalt is planning to raise roughly $230m (£174m), with commodities trader Glencore due to take a 10% stake.
The government is also expected to launch a consultation in coming weeks on a possible shake-up of the Isa market to incentivise more investment in British stocks via the tax-free accounts.