U.K. government officials are piling pressure on pension fund managers to commit 10% of their assets to listed and unlisted British equities as part of a rebooted Mansion House compact in the summer.
Torsten Bell, the pensions minister, has suggested a voluntary 10% allocation to the U.K. during conversations with the industry, according to five investment managers who asked not to be named because the discussions were private. One of the people said the request carried an implicit threat that the government could force firms to invest in the U.K. as part of the ongoing Pension Investment Review if a voluntary arrangement is not struck.
Discussions are gathering pace as an announcement on the “Mansion House Compact 2” is scheduled for late June or early July, two years after the original accord. Eleven companies committed in 2023 to invest 5% of defined contribution pension funds in unlisted equities by 2030, though a proposal for a specific U.K. allocation was dropped.
A Treasury spokesperson said: “We are going further and faster to drive growth through our Plan for Change to put more money into people’s pockets, including by unlocking billions of pounds from our pensions system through taking advantage of consolidation and scale.”
“We also welcome ongoing work from pension funds for more ambitious voluntary commitments to invest in a wider range of assets.”
Labour is keen to ensure that the updated compact includes a domestic commitment after analysis showed U.K. funds put far less in their home market than other nations. Think tank New Financial found that just 4% of UK pension assets are invested in local equities compared with a global average of 10%.
The government believes underinvestment by both the private and public sectors is one of the main causes of weak U.K. growth. Chancellor of the Exchequer Rachel Reeves has increased public spending and is deregulating to try and lift private investment as well. A U.K. allocation commitment by pension funds would further those efforts.
Labour is consulting on pension reform and will make proposals in the final report of its Pension Investment Review, due in the spring. Details of the Mansion House Compact 2 are expected to be agreed in the coming weeks, ahead of publication of the review.
“I particularly want to welcome the ambition to go further through voluntary commitments,” Bell told the Pension and Lifetime Savings Association conference in Edinburgh this week. “I look forward to seeing the results in the coming weeks and will weigh them heavily as we finalize the Investment Review.”
The City of London Corporation has been coordinating talks within the industry. The updated compact is expected to expand the number of signatories, introduce a reporting regime that reveals how much each signatory is investing in the U.K. and specify a domestic allocation target.
However, Bell’s proposal for a target of up to 10% has triggered a revolt among some managers, according to some of the people familiar with the matter. Other proposals are for a target of 5%, though the exact figures have yet to be agreed.
