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Rachel Reeves faced resistance from pension funds on Tuesday over plans that would give ministers a “backstop” power to force them to honour a new voluntary pact to invest up to £50bn in private assets.
Asked whether she would mandate pension funds to push more cash into the economy — including an estimated £25bn into UK companies, infrastructure and property — the chancellor said “never say never”.
Treasury officials confirmed that a new pension schemes bill, expected in the summer, would give ministers a reserve “mandating power to set binding asset allocations”.
They said details would follow, but the backstop power would include “guardrails to protect savers’ interests” and would be time-limited. “There could be a sunset clause,” one official said.
The idea of “mandation” is strongly resisted by the industry and Reeves said on Tuesday she thought that it would never be needed, but the threat alone has irritated some in the City of London.
“One of the points we insisted on is that there be no mandation,” said Benoit Hudon, chief executive of Mercer UK, one of the signatories of a new Mansion House Accord, a voluntary agreement signed on Tuesday.
Hudon added that the point was “critical to us because if you force everyone to move to the UK, creating all that demand, it may be that just by virtue of market forces, you end up paying too much for something”.
The voluntary pact involves 17 of the UK’s largest pension fund managers pledging to invest at least 10 per cent of assets in the default funds of their defined contribution schemes in private markets by the end of the decade. DC schemes cover the vast majority of UK savers.
Half of this investment will be made in the UK. The accord was signed on condition of “critical enablers” being met, including the government facilitating a pipeline of investment opportunities and the whole pensions market shifting from a focus on “cost” to a focus on “value”.
The signatories of the accord have £252bn of assets subject to the pledge. The Treasury said that, based on historical growth rates and reflecting expected consolidation in the market, this figure could rise to £740bn by 2030.
David Lane, chief executive of TPT Retirement Solutions, which signed the pact, said he hoped the legislative backstop was “more a place holder than a serious intent to go down that road”. Forcing managers to invest in specific assets would “open up a load of investment challenges in terms of fiduciary duty and outcomes for members”, he added.
Signatories to the accord included Aviva, Legal & General, M&G, Mercer, Nest, People’s Pension, Phoenix, Royal London and the Universities Superannuation Scheme, but Scottish Widows, the pensions arm of Lloyds Banking Group, did not sign up.
Scottish Widows said it remained committed to the original Mansion House compact target, signed in autumn 2023 under the previous Conservative government, of investing 5 per cent of its default funds in unlisted equities by 2030. With £230bn of investments, the company was already heavily invested in the UK, it added.
One person involved in the accord said the absence of Scottish Widows potentially put the company at a commercial advantage because it was not under the same pressure to allocate to private markets.
Reeves was reluctant to talk publicly about the plan at the City launch of the new Mansion House deal near the Tower of London.
“Never say never,” Reeves told Bloomberg TV, when asked if she was considering forcing funds to invest in British companies and infrastructure projects. “But I don’t think it’s necessary. We don’t need to mandate them if people are willing to sign a voluntary accord.”
Sir Mel Stride, shadow chancellor, criticised the use of compulsory investment targets. “Labour ministers have a habit of thinking they know best what to do with other people’s money,” he told MPs.
But Sir Jeremy Hunt, former Conservative chancellor, applauded Reeves for building on his original compact and another former Tory Treasury minister, John Glen, has argued mandation should be an option for ministers.
“We have come to the point with these defined benefit schemes where their risk aversion needs to be called out,” he said.
