It’s rare for Labour governments to pick up and follow through on Conservative proposals, but that has been the case with the Mansion House Accord, an initiative to boost public investment in private markets and UK infrastructure via pension schemes.
What Is the Mansion House Accord and Why Does It Matter?
The Mansion House Accord follows on from the Mansion House Compact, which was signed in July 2023 by 11 pension providers and then chancellor, Jeremy Hunt. The agreement takes its name from the Mansion House speech, the annual event where the UK chancellor makes delivers an address to City of London grandees.
This week, seventeen workplace pension providers-including Aviva, Legal & General, Aviva, Legal & General, Royal London and Nest- have signed the compact, which commits to allocating at least 10% of their defined contribution default funds in private markets by 2030. At least half that is earmarked toward UK-specific assets. Defined-contribution schemes are the most common in the UK, and allow workers to accumulate pension pots linked to stock market performance.
Which Pension Providers Have Signed the Accord?
The agreement comes amid growing interest from UK financial-services industry in opening up private markets to retail investors, a topic covered in a recent Morningstar special report week. It was also a key theme of the Morningstar Investment Conference in London in early May, where chief executive Kunal Kapoor talked about the convergence of public and private markets. There is widespread agreement across the financial-services industry that the returns offered by UK pension schemes have not been high enough to afford savers a comfortable enough retirement. Until this year, UK stocks have lagged rivals in Europe and the US and companies have shunned London as a place to float new companies. There’s also been a renewed push under the Labour government, elected in July 2024, to boost investments in UK infrastructure, rather than leaning on government borrowing.
Chancellor Rachel Reeves signed the accord in the City on May 13. The agreement is expected to funnel at least £25 billion into private and/or UK assets by 2030.
She said: “I think this accord is a milestone in our plan to ensure that the pension system works better for savers.
“But when people make the sacrifice of saving into a pension, they should be assured 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.”
What the Mansion House Accord Means for UK Savers and Investors
Here’s what the industry figures said of the accord.
Dan Kemp, chief research and investment officer at Morningstar, said:
“When assessing any investment objective, the first question must always be: is this in the best interests of the end investor and will it empower their success? For many, access to private assets provide a broader range of investment options and can improve long term returns due to the presence of an ‘illiquidity premium’. However, this premium is not constant and fees in private markets tend to be higher which can act as a drag on return.
“This latest announcement appears to be focused on supporting British industry rather than solely for the benefit of investors. While investors will indirectly benefit from increased growth in the UK economy mandating where capital is invested may lower returns and introduce additional risk.
“Consequently, pension schemes will need to address how they balance this commitment with their duty to investors if there are insufficiently attractively priced private investment options
Amanda Blanc DBE, Aviva group chief executive officer, said:
“This is a major opportunity for the pension and investment industry to support UK growth while delivering improved outcomes for pension savers. As a significant investor in private markets, Aviva has recently launched a number of funds to give over four million workplace pension customers even greater opportunity to invest in UK assets, including innovative, early-stage businesses, and we want to do much more.”
Tony Dalwood, CEO, Gresham House, said:
“The rhetoric contained within Mansion House Accord is welcome but, whilst large-scale projects might grab the headlines, it is crucial that the government doesn’t overlook the easy—and critically important—wins. One such area is enabling primary capital investment into projects below £50 million, which is a vital driver for growth investment that should be a clear priority. The UK is already well-positioned to mobilize and deploy capital into identified, high-quality small and mid-sized infrastructure opportunities.
“Increasing allocations to UK businesses through private markets can be achieved without compromising the fiduciary duty of a pension fund to its members. The UK benefits from a strong network of specialist global asset managers with proven track records in UK investments, making capital deployment relatively seamless. These investments not only offer long-term financial returns but also support the government’s sustainability agenda. We see significant opportunities in areas like battery energy storage, sustainable infrastructure, and natural capital. Additionally, the relaxation of the Solvency II rules will unlock substantial capital from UK insurers.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
