Some 17 of the largest workplace pension providers in the UK have committed to investing at least 10% of their defined contribution (DC) default funds in private markets by 2030.
At least 5% of these portfolios will be ring-fenced for the UK. The Government said this is expected to release £25bn directly into the UK economy by 2030.
Ministers claim this investment could support clean energy developments across the country, deliver greater energy security, help lower household energy bills, create jobs and boost businesses.
The voluntary initiative, to be known as the ‘Mansion House Accord’, has been jointly led by the Association of British Insurers (ABI), the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation.
It is aimed at securing better financial outcomes for DC savers through the higher potential net returns available in private markets, as well as boosting investment in the UK.
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Signatories to the new commitment include 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).
The announcement comes ahead of the Pensions Investment Review final report, which will create “megafunds” to drive more investment, boost pension pots and grow the economy through the Plan for Change.
Rachel Reeves, Chancellor of the Exchequer, said: “Through our Plan for Change, 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 start-ups – delivering growth, boosting pension pots, and giving working people greater security in retirement.”
‘Deeply concerning’
Despite the Government’s promises, some industry experts were sceptical about mandating pension schemes to invest in certain assets.
Lisa Picardo, chief business officer UK at PensionBee, said: “Pension schemes should be empowered to make sound, independent decisions based on what delivers the best outcomes for their members. Investment decisions should be driven by long term value, transparency and suitability, not political pressure.
“The voluntary pact made by many of the UK’s largest pension funds suggests that there is real willingness to invest in private asset classes or UK assets. If this genuinely offers an opportunity for strong returns with sufficient liquidity, these asset classes will attract capital without the need for compulsion.
“However, the threat of mandation forcing schemes to allocate capital is deeply concerning, especially when it relates to private markets’ assets, where returns can be opaque, costs can be high and liquidity is limited.
“Whilst we support efforts to boost UK investment and growth, and to improve returns, legislation must not override a scheme’s duty to act solely in the best interests of its members. That principle must be respected and upheld.”
Jason Hollands, managing director at Evelyn Partners, said: “As we are obliged to remind investors, ‘past performance is not a guide to the future’, and strong returns made on private markets by investors over the last two decades were supported by a period of ultra-low interest rates.
“While we must hope this move will manifest itself in improved returns for pension scheme members, sizeable allocations to illiquid investments is 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? Media reports suggest that the threat of mandatory allocations has been a factor. 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?”
