The government is set to give itself the power to mandate pension funds to invest cash in UK projects if they fail to comply with a voluntary pact due to be announced this week.
A review, led by pensions minister Torsten Bell, is expected to recommend that the government is given the option to mandate pension fund investment, according to a source close to the government.
The review will be published later this month after an agreement this week by more than 15 major pension fund investors — thought to include FTSE 100 giants L&G, Aviva, Phoenix and M&G — to invest up to 10 per cent of their assets in fast-growing companies and infrastructure, with half of that designated for the UK, by 2030.
Known as the Mansion House Accord, it will amount to at least £25 billion of extra investment from workplace pension funds. But it has exposed divisions in the City about whether forcing pension funds to invest in certain areas clashes with their “fiduciary duty”, which is to provide the best return to their investors. There has been speculation that the government will use a regulatory “backstop” to force investment in areas it regards as important.
One senior City source warned there was “growing concern” that it would lead to lower returns for pension funds.
In addition, a push to invest more in unlisted assets could be more expensive for pension fund holders. Fees charged by pension fund providers to invest in private markets are higher than those for investing in the stock market.
The Accord is intended to build on the 2023 Mansion House Compact, under which pension funds agreed to invest 5 per cent of their assets in unlisted equities by 2030. It is being orchestrated by Alastair King, the lord mayor, a figurehead position at the City of London Corporation — the local authority for the financial district.
A wide range of pension fund providers are said to have signed up to the Accord but it is not clear whether Scottish Widows, owned by Lloyds Banking Group, has done so. Scottish Widows is the biggest of the default fund providers for workplace pensions.
The Treasury and the City of London Corporation declined to comment.
