A landmark agreement to encourage Britain’s pension funds to invest more in the UK has been delayed, leading to fresh debate in the City over the precise terms of the deal.
Under the mooted plan, pension funds would commit to investing up to 10 per cent of their assets in fast-growing companies and infrastructure projects — up from 5 per cent previously. It also includes an agreement for half of the money pledged to be committed to British assets by 2030.
The City had been prepared for the agreement to be announced on Tuesday, but this has now been postponed until at least next week.
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Some are questioning the purpose of the plan, amid concerns that it could clash with the “fiduciary duty” of pension funds to provide the best returns for their members. There are also concerns in the City that the government will use legislation to make such investment mandatory.
The plan is being co-ordinated by Alastair King, the lord mayor, a figurehead position at the City of London Corporation — the local authority for the financial district. It is intended to build on the 2023 Mansion House Compact, in which 11 pension fund providers voluntarily agreed to invest 5 per cent of their assets in unlisted equities by 2030. The compact was endorsed by then-chancellor Jeremy Hunt.
After the first year, data compiled by the Association of British Insurers showed that these investments had reached just 0.36 per cent.
Last week, a series of meetings were held across the City about the Mansion House Compact 2 — now known as the Accord — in which details of the plan for increasing that 5 per cent commitment to 10 per cent were outlined ahead of publication this week.
While the delay is being blamed on government scheduling issues, it has prompted a fresh debate about the plan’s purpose. Some big pension providers have already backed the idea, but some in the City are questioning what its purpose is. “It is a solution in search of a problem,” said one source.
When King, who owns his own fund management firm, took over as lord mayor last year, he pledged to review the original Mansion House Compact and see whether it could be completed more quickly, and possibly include investment in stock market-listed companies.
The new Accord is said to include investment in companies listed on Aim, London’s junior market.
Charles Hall, head of research at the investment bank Peel Hunt, advocated a portion being allocated to companies listed on the main market, to try to revive the London Stock Exchange. There has been only one significant initial public offering (IPO) on the LSE this year — for the accountancy firm MHA — while there have been 21 companies receiving takeover approaches.
Phoenix, the FTSE 100 pension provider, raised its concerns with the Financial Times, particularly in the face of any move by the government to mandate investment rather than stick with a voluntary agreement. “We believe it is right to focus on efforts to unlock more domestic investment, but we believe the most sustainable solution lies in creating the right incentives, not mandates,” it said.
Mel Stride, the shadow chancellor, also urged the government not to mandate investment, telling the FT: “Pension funds must be free to make investment decisions based on what’s best for savers.”
The Accord will be one of a series of announcements that the government is thought to be planning to encourage more investment by the pension fund industry. This month, more detail is expected on plans to merge 86 local authority pension schemes — to create “mega funds” intended to unlock £80 billion for investment — as well as information on ideas to unleash the surpluses that some pension funds are sitting on.
The City of London Corporation and the Treasury declined to comment.
