Pension Funds to Face Regulatory Changes under New Mansion House Accord
UK Chancellor Rachel Reeves is scheduled to unveil new proposals on Tuesday that will require large pension funds to invest as much as £50 billion in private assets. This initiative will be enforced if funds do not meet the voluntary objectives outlined in a forthcoming “Mansion House accord.”
Government’s Legislative Framework
According to Treasury officials, legislation will be introduced later this year to empower ministers to act should these voluntary targets fail to yield the desired outcomes.
New Investments Pledged
In a concurrent announcement, 17 of the UK’s largest pension funds have committed to invest at least 10% of their assets in private markets by 2030, with a significant portion aimed at domestic investments.
Background of the Mansion House Accord
This latest agreement follows an earlier compact initiated by former Conservative Chancellor Jeremy Hunt in 2023, which involved 11 pension funds pledging to allocate up to 5% of their portfolios to private equity by the end of the decade.
Monitoring and Accountability
The Treasury has indicated that the progress of this new commitment will be closely monitored. Key measures to enhance the effectiveness of the accord are anticipated in the upcoming final report of the pensions investment review.
Industry Reactions
While some, like Shadow Chancellor Mel Stride, criticize the plans as desperate measures, Treasury officials maintain that ensuring pension funds honor their commitments is crucial for generating improved returns for savers and injecting £25 billion into the UK economy by 2030.
Optimism for Increased Investment
Alastair King, Lord Mayor of the City of London, expressed optimism regarding the agreement, noting that it includes various asset classes such as infrastructure and private equity. He believes this could draw international investments into UK projects.
Previous Critiques and Call for Action
The new legislative framework comes in the wake of criticisms stating that the initial Mansion House compact has not sufficiently supported fast-growing sectors, particularly in life sciences.
Steve Bates, CEO of the BioIndustry Association, highlighted the lack of meaningful UK pension fund participation in the life science sector, emphasizing the need for solid involvement.
The Path Forward
An analysis by New Financial revealed that UK defined contribution pension funds currently allocate only about 2% of their total assets to private equity and another 2% to infrastructure investments.
Proponents of the new accord believe that increasing investment in private markets will bolster the real economy and also improve investment returns. “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 and boosting pension pots for working people,” said Reeves.
Conclusion
As the deadlines for these commitments draw near, the effectiveness and impacts of the Mansion House accord will be closely watched by stakeholders across the economy. The upcoming final report of the pensions investment review is expected to shed light on how these reforms could further enhance investments in productive assets.