Bank of England (BoE) governor Andrew Bailey has openly opposed the UK government’s proposed “back‑stop” power to mandate pension scheme investments into UK assets, warning that while reforms are needed, they should come through market mechanisms, not ministerial decree.
Speaking this morning at the BoE’s Financial Stability Report Press Conference, Bailey acknowledged that “we’ve had a low level of pension fund investment in the economy” and that the industry’s structural challenges, including fragmentation and weak engagement with real‑economy assets, “require a lot of heavy lifting”.
However, he was unequivocal on mandation: “I do not support mandating, I don’t think that’s appropriate […] I hope changes will be ‘natural’.”
This represents a sharp rebuke of the government’s Pension Schemes Bill, currently progressing through Parliament after its second reading on 7 July.
The Bill would grant ministers a reserve power to compel defined contribution (DC) schemes to allocate minimum proportions of capital into UK infrastructure, private markets, or other domestic investments.
The power is intended as a safeguard, to be invoked only if voluntary efforts – which include the Mansion House Accord, in which 17 major trustees and providers pledged 5% of default scheme assets to UK private markets – prove inadequate.
Industry alarm
Industry players have widely criticised the proposal. LCP partner and former pensions minister Steve Webb described Bailey’s intervention as “nuclear” and potentially “very unwelcome at DWP”.
Webb added: “It is ultimately for the trustees of pension schemes to decide how to invest in the best interests of their members, and not for ministers to tell them how to invest […] this challenge raises serious questions about whether this policy will survive scrutiny in the House of Commons and House of Lords over the coming months.”
Further industry concerns were voiced by Lloyds Banking Group chief Charlie Nunn, who cautioned that mandating UK investment “could conflict with fiduciary duties” and risk being perceived as a form of capital control, according to The Financial Times.
Government response and outlook
The UK government, through chancellor Rachel Reeves, maintains that ‘mandation’ remains optional, intended merely as a back‑stop to support voluntary pledges and encourage consolidation into larger “megafunds”, with a target of £25bn per fund by 2030.
These reforms aim to unlock additional UK-based investment and drive growth in infrastructure and high-growth sectors.
However, Bailey’s clear objection – echoing long-standing BoE concerns – puts the spotlight on the Pension Schemes Bill’s future. With key opposition now from the Bank’s governor, questions grow over whether the clause will survive parliamentary scrutiny intact, or be reshaped to focus on incentivising rather than compelling trustees.
Against a backdrop of market volatility and global economic fragmentation, Bailey’s call for “natural” reform highlights a crucial tension: balancing the government’s desire to mobilise pension savings with preserving trustees’ autonomy and fiduciary responsibility.
The coming weeks in the Commons and Lords will test whether this balancing act can be achieved.
Read the digital edition of IPE’s latest magazine
No comments yet