UK pensions industry calls for removal of ‘mandation’ power in Pension Schemes Bill

UK pensions industry groups have warned against proposed government powers to mandate investment in private markets under the Pension Schemes Bill.

In June, the UK government introduced the Pension Schemes Bill, which aims to transform the £2trn (€3.6trn) pensions industry to ensure savers receive good returns for each pound they save, and drive investment into the economy, through a suite of measures.

While the Bill has been widely welcomed by the pensions industry, serious concerns remain regarding the government’s proposed powers to mandate pension investment in private markets.

The Society of Pension Professionals (SPP) described this aspect as “one of the very few” features of the Bill it does not support. In its response to the government’s call for evidence, SPP recommended the removal of the mandation power, warning that, as drafted, the Bill leaves key asset allocation details to future regulations.

As SPP noted, “The Delegated Powers Memorandum is silent on what is intended – we believe Parliament needs better visibility now of what will be covered if the relevant section as drafted receives Royal Assent”.

SPP is concerned that retaining the mandation power may cause conflicts between mandated investment and legal duties such as fiduciary responsibility and Value for Money.

Pensions UK echoed these concerns, stating that mandation is not the appropriate approach and advocating for a voluntary relationship with the industry as set out in the Mansion House Accord.

Pensions UK noted that the current sunset clause for these powers – set at 2035 – extends well beyond the current Parliament and grants broad discretion to the secretary of state to set investment targets.

It argued that this should be limited to at least 2032 and that investment requirements should align with the Mansion House Accord, which states that a minimum of 10% of assets should be invested in private markets, half of which (5%) is in the UK.

Risky business

The association highlighted that any government intervention to direct how savers’ money is invested is risky.

It explained: “If the government does not manage to create the right environment with a suitable pipeline of investment opportunities, mandating investment would involve considerable downside risk for scheme members. Trust in the system could also be impacted.”

Pensions UK added that powers to intervene in the investment activities of Local Government Pension Scheme (LGPS) pools, and in decisions about fund mergers and funds’ choice of investment pool, imply a lack of trust in current scheme managers.

It stressed that the reason for these powers being taken “needs clarifying”.

The Association of Consulting Actuaries also shared strong reservations, stating that the ability to mandate asset allocation is not in the best interest of pension funds, their members or employers, and should be removed.

It said: “If there are attractive UK investments, schemes will invest in them. If there are not, mandating that is likely to require schemes to select less attractive investments. A better focus for government would therefore be to find incentives to encourage development of assets into which UK schemes want to invest.”

ACA also warned that the proposed powers overreach into fiduciary duties and could blur asset allocation responsibilities.

It agreed with Pensions UK that widespread support exists for the voluntary Mansion House Accord, but cautioned that forcing market activity risks inefficiencies, for example, by inflating prices when large amounts of capital chase a limited supply of opportunities with fixed deadlines.

ACA also raised concerns about government intervention in LGPS asset investment, stating such powers could conflict with scheme manager responsibilities and increase the risk of sub-optimal future funding outcomes.

“Given this, we would expect more detail around when or how these powers are to be used to avoid any future governments taking actions which could be to the detriment of scheme managers having sufficient funds to pay members’ benefits,” it said.

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