A new government initiative is being launched with pension providers aimed at boosting investment in UK companies.
Seventeen workplace pension providers will today sign up to a voluntary initiative called the Mansion House Accord, which ministers say could release £25bn directly into the UK economy by 2030.
Those signing up must commit to allocating at least 10% of the funds they hold in what are known as defined contributions to private markets within the next five years, with at least 5% of the total allocated to the UK, assuming that there is a sufficient supply of suitable assets.
It comes amid debate over the international competitiveness of London’s capital markets, with a number of large London-listed companies having switched their primary listing to New York.
Meanwhile, London’s stock markets have lagged behind their international equivalents.
Most people with a pension who work for private companies have one based on defined contributions (DC) – which pays out after retirement depending on how much was paid in.
The pension providers 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).
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Together, the government says they manage around 90% of active savers’ defined contribution pensions.
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.
At the time, an industry source told Sky’s Mark Kleinman that then chancellor Jeremy Hunt was keen to address his concern that returns for British pensioners were lower than international peers.
The Financial Times reported in summer of 2023 that Treasury officials were considering regulatory changes to channel more UK pension fund investment into riskier British companies such as start-ups.
Mr Hunt tried to boost investment in UK markets with a UK ISA, but it failed to get off the ground.
In recent years, British markets have not kept pace with many others. In the last 10 years, the FTSE 100 index has risen around 23%, compared to a 133% increase in the Dow Jones, Germany’s Dax index rising 115% and Japan’s Nikkei rising 87%.
Last year, a string of companies announced plans to move their primary listings from London to New York or elsewhere, with chip designer ARM Holdings opting to float in the US and private equity firm CVC Capital Partners listing in Amsterdam.
Chancellor Rachel Reeves said in response to the Mansion House Accord: “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, a director at the Association of British Insurers, which is jointly leading the initiative with the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation, said: “As major investors, the pensions industry already plays a vital role in driving growth in the UK and globally.
“Investments under the accord will always be made in savers’ best interests. 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.”
Alastair King, Lord Mayor of London, said: “If we want those firms to scale in the UK, we must ensure they have the capital to do so. This is not just about better pension outcomes, it is about building a more dynamic, competitive investment ecosystem.”
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “UK pension schemes already invest billions in UK growth assets.
“This accord demonstrates the collective ambition of the DC sector to do even more, as well as its confidence that the UK will provide the right opportunities to invest, consistent with schemes’ fiduciary duty to members.
“The government, in its turn, has 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.”
