UK largest employers back pledge to prioritise pension returns over cost

Over 20 of the UK’s largest employers have pledged to maximise employee pension value by prioritising retirement outcomes for their workforce, rather than focusing on cost reduction, when selecting or reviewing pension providers.

The voluntary agreement, named the Employer Pension pledge, is led by the Lord Mayor of London Alastair King, in partnership with leading employers and pension industry experts.

The pledge seeks to transform the UK’s pension investment culture by moving beyond a “narrow, cost-focused model” to champion a value-for-money approach that puts long-term returns for savers “at the centre”.

This is because, as the City of London pointed out, despite defined contribution (DC) being the fastest-growing retirement savings vehicle in the UK with projected to exceed £1trn by 2030, only 30% of the population are on track to achieve a moderate standard of living in retirement.

The pledge will be signed by the Lord Mayor at the Mansion House Financial and Professional Services Dinner and is separate to the Mansion House Compact and Mansion House Accord.

Together, these separate initiatives saw the UK’s largest DC pension providers commit to investing at least 10% of default funds in private markets by 2030, with a minimum of 5% allocated to UK assets, however, these commitments do not apply to signatories of the Employer Pension Pledge.

Signatories to the Pledge include: Aberdeen Group, Aviva, BT, Canada Life UK, First Group, Goldman Sachs, Legal and General, London Stock Exchange Plc, M&G, Nationwide Building Society, NatWest Group, Octopus Energy, Octopus Investments, Phoenix Group, Samworth Brothers, Santander, Schroders, Standard Chartered, Tata Steel UK, and Tesco.

The City of London added that while the Compact and Accord are focused on the supply side, the Employer Pension Pledge activates the demand side of the value chain by engaging employers who influence the direction of pension fund investment. It added that the pledge aligns with the principles of the upcoming Financial Conduct Authority’s (FCA) Value for Money (VfM) framework, which is being reviewed to align with The Pensions Regulator.

“Employers have always played a decisive, if underappreciated, role in shaping retirement outcomes. This Pledge is about making that role visible, responsible, and focused on value.”

Alastair King, Lord Mayor of London

King, Lord Mayor of London, said: “Employers have always played a decisive, if underappreciated, role in shaping retirement outcomes. This Pledge is about making that role visible, responsible, and focused on value.”

He added that the pledge “harnesses the convening power” of the City of London Corporation in support of growth and shared prosperity across the UK.

“I am grateful to the major employers who have helped lay the foundations of the Pledge. In the months ahead, I look forward to welcoming many more organisations – large and small – to join the existing signatories. “This is an example of the mayoralty working across the entire pension investment value chain to deliver better outcomes for savers,” he noted.

Minister for pensions Torsten Bell added that workers “rightly” want their pension savings to work harder for them.

He said: “It is normally employers, not employees, who choose which pension scheme workers are invested in. So I welcome this pledge to encourage employers to focus on what matters most to their workers: how fast pension pots grow.”

Richard Oldfield, Schroders group chief executive officer, said that for “too long now” DC schemes have been focused on costs rather than delivering the best possible returns for savers and, ultimately, retirees.

He said: “A greater focus on value for money and long-term investment outcomes is a strong step in the right direction. Furthermore, these proposals should help unlock capital to invest in private markets, such as infrastructure, benefitting savers and the wider economy.”

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