Plans to force UK defined contribution pension schemes to allocate specified funds to UK growth assets have been thwarted by the House of Lords.
Britain’s upper chamber voted to remove powers that would have permitted the government to mandate how the nation’s retirement plans pension schemes invest, coming as a blow to Chancellor Rachel Reeves who saw they billions of pounds in DC assets as essential to supporting infrastructure and clean energy projects.
The original UK Pension Schemes Bill included a clause that would force funds to allocate capital toward UK growth assets if they failed voluntarily agree to reach a 10 per cent allocation of their funds in private, unlisted assets – half of which must be domestic – by 2030.
However, mandation was widely condemned by the pensions industry which fiercely guards trustees’ fiduciary duty to set investment strategies in the best interests of their members.
Baroness Ros Altmann, former adviser to Downing Street on pensions, said: “Governments do not have a particularly successful record of picking great investments – excluding investment trusts is a vivid example of this. The ability of government to direct pension investments is called into question by the Bill’s provision that excludes one of the most suitable options for pension funds to invest the chosen assets.”
Altmann notes that the Bill prevented trustees from investing in listed collective investment funds, such as trusts and REITs, “even if they invest in precisely the kind of assets that Government wants pension funds to support”.
Nigel Green, CEO and Founder at deVere Group, said the House of Lords has “made the right call” in voting down mandation.
“Pension funds are not tools of government policy. They exist to deliver the strongest possible outcomes for savers, and that requires independence in how capital is allocated. Giving ministers the power to influence where defined contribution schemes invest risks crossing a line that should not be blurred. Investment decisions must be driven by returns, risk management and diversification, not political priorities.”
Green argued that government is better placed attracting investment into UK markets by improving the environment and strengthening opportunities.
“Coercion achieves the opposite,” Green said. “Confidence in long-term saving depends on clarity and trust. Savers need to know their pensions are managed with discipline and independence. This decision protects that principle.”
Zoe Alexander, Executive Director of Policy and Advocacy at Pensions UK, described the Lords’ amendment to as “a win for savers”, claiming that having mandation on the statute book would “expose millions of workers’ retirement savings to political cycles and undermine the duty of pension trustees to act at all times in the interests of savers”.
“Pensions UK’s preferred method to drive investment in UK markets is a voluntary approach supported by improvements to the investment environment. The Mansion House Accord, a commitment by 17 of the largest UK pension providers to back unlisted UK and global investment opportunities where they are in the best interests of savers, shows there is already strong support.”
