A commitment by pension funds to invest tens of billions in British infrastructure projects and businesses has been welcomed by Rachel Reeves.
The Chancellor said the agreement will help start-up firms access finance to grow.
Seventeen workplace pension providers have signed up to the voluntary initiative.
The Mansion House Accord aims to help defined contribution (DC) pension savers by harnessing higher potential net returns available in private markets, as well as strengthening investment in the UK.
Those signing up commit to allocating at least 10% of their DC default funds in private markets by 2030, with at least 5% of the total allocated to the UK, assuming there is a sufficient supply of suitable assets.
That 5% commitment is expected to release £25 billion directly into the UK economy by 2030, with some pension funds indicating privately that they will go beyond the targets agreed through the accord.
At a signing ceremony at a breakfast meeting with pension fund executives, the Chancellor said: “I think this accord is a milestone in our plan to ensure that the pension system works better for savers.
“In the end, that’s what all of your businesses are about and that is what this Government wants to achieve.
“But when people make the sacrifice of saving into a pension, they should be assured that that money is going to work well for them. And we have seen over recent years, over recent decades, I think, an allocation which is not always best for savers.”
She added: “We know that the reforms that we are making today, the accord that you’re all signing, will make it easier for our brilliant start-up and scale-up businesses to access finance, to grow their businesses, to create good jobs, obviously to create wealth and opportunity for this country.”
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.
Workers are often placed into a DC pension pot under automatic enrolment. The size of the pension pot they eventually end up with depends on factors such as how early they start saving, how much they put in, and investment performance.
The initiative has been jointly led by the Association of British Insurers (ABI), the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation.
Based on providers’ current investment holdings, total pension assets in the scope of the agreement amount to £252 billion. The industry expects this amount to increase over the accord’s lifetime.
Those signing 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 initiative builds on the Mansion House Compact, which was signed in July 2023 and saw 11 UK pension providers committing to the aim of investing 5% of DC defaults in unlisted equities, including venture capital and growth equity, by 2030.
For providers who have signed up to both, progress under the compact counts towards meeting the goals of the accord.
Yvonne Braun, director of policy, long-term savings, health and protection at the ABI, said: “Investments under the accord will always be made in savers’ best interests.
“It is now critical that Government supports the industry’s ambition, by facilitating a pipeline of suitable investment opportunities, tackling barriers to investments, and delivering wider pension reforms effectively.”
Nausicaa Delfas, chief executive of the Pensions Regulator, said: “Savers rightly expect good performance from their pension investments. That’s why we welcome this latest initiative, which could both boost returns for pension savers whilst also potentially unlock more capital for investment in the UK economy.”
