A new Mansion House Accord backed by 17 pension firms aims to help DC pension savers by using private markets to boost potential net returns, while strengthening investment in the UK.

Firms which have signed today’s Accord manage around 90% of active savers’ DC pensions.

They have committed to allocate at least 10% of their DC default funds in private markets by 2030, with at least 5% of the total will be allocated to the UK, if there is a sufficient supply of suitable assets.

The initiative has been led by the Association of British Insurers, the Pensions and Lifetime Savings Association and the City of London Corporation.

The pension firms signed up are: Aegon UK, Aon, Aviva, Legal & General, LifeSight, M&G, Mercer, NatWest Cushon, Nest, Now:pensions, Phoenix Group, Royal London, Smart Pension, the People’s Pension, SEI, TPT Retirement Solutions and the Universities Superannuation Scheme (USS).

The new accord builds on the Mansion House Compact, signed in July 2023 by 11 UK pension providers, that committed to the aim of investing 5% of DC defaults in unlisted equities, including venture capital and growth equity, by 2030.

The new commitment brings more assets into scope, doubles the target from 5% to 10%, and includes a specific commitment to investing 5% in the UK.

The Government said the new deal could help £25billion be released directly into the UK economy by 2030.

Rachel Reeves, Chancellor, said: “This bold step by some of our biggest pension funds will unlock billions for major infrastructure, clean energy, and exciting start-ups – delivering growth, boosting pension pots, and giving working people greater security in retirement.”

Torsten Bell, Pensions Minister, said: “Pensions matter hugely, they underpin not just the retirements we all look forward to, but the investment our future prosperity depends on.”

Yvonne Braun, director of policy, long-term savings, health and protection at the ABI, said: “As major investors, the pensions industry already plays a vital role in driving growth in the UK and globally. The accord formalises the industry’s ambition to invest more in private markets to diversify investments, support innovation and infrastructure, and ensure prosperity.”

Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “The accord demonstrates the collective ambition of the DC sector to do more, as well as its confidence that the UK will provide the right opportunities to invest, consistent with schemes’ fiduciary duty to members.”

The commitment is subject to fiduciary duties as well as the Consumer Duty, which requires financial firms to put consumers at the heart of their products.

Based on providers’ current investment holdings, total pension assets in the scope of the agreement amount to £252billion. The industry expects this amount to increase over the accord’s lifetime.

Progress against the commitment will be monitored and the initiative will be reinforced by measures to be announced in the upcoming final report of the Pensions Investment Review.

The final report will tackle fragmentation in the UK pension system, creating pension megafunds that take advantage of scale and consolidation like Australian and Canadian funds do, to invest in productive assets like private markets and big infrastructure projects. 

Noticeable by its absence from the list of major pension firms supporting the Accord is Scottish Widows, owned by Lloyds Bank. 

A spokesperson for the firm told Financial Planning Today: "It is great to see the Government and industry focusing on further private investment into the UK. We’ve announced plans to launch a Long Term Asset Fund, as part of our ongoing commitment to providing innovative investment solutions for customers so that our customers have the option to invest further in private markets.

"We remain committed to the original Mansion House Compact target of investing 5% of our default funds in unlisted equities by 2030. Later this year we’ll share details on further investment into innovative UK business."