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Rachel Reeves has been accused by the Conservatives of “desperation” after plans to corral pension funds to invest more in the UK were criticised by the industry.
The chancellor is trying to increase the amount that funds hold in Britain, but the sector has warned that mandating investment levels would risk jeopardising returns and leaving their members worse off.
Mel Stride, shadow chancellor, told the Financial Times: “Pension funds must be free to make investment decisions based on what’s best for savers.”
He added: “The suggestion they should be compelled to invest in what the Labour government wants them to, even if this means leaving their members worse off, is very concerning.”
The pensions industry is expected to this month agree with Reeves’ voluntary targets — dubbed the “Mansion House Compact II” — intended to see more funds allocated to private markets, including in the UK.
The deal would see pension funds agree to allocate 10 per cent of their assets to private funds by the end of the decade, with half in the UK. However, ministers have told the industry they are looking at ways to ensure the voluntary pact actually pumps more cash into private assets.
The Treasury has not ruled out making the voluntary targets mandatory but industry executives say that it would open “a can of worms”, including cutting across their fiduciary duty to ensure the best possible returns for savers.
Stride said the voluntary approach, pioneered by former Tory chancellor Jeremy Hunt in his original Mansion House Compact, was the way forward, adding: “Rachel Reeves wants to use your pension pot to bail her out of her own economic failings.”
He added: “Voluntary initiatives like the Mansion House Compact showed how growth can be unlocked without coercion. New transparency rules to require funds to divulge how and where their assets are allocated, introduced by the Conservative government, will also help.
“But now the chancellor is threatening to use legislative pressure to force funds into domestic equities, regardless of risk or return. That’s not leadership — it’s desperation.”
Concerns from the industry have poured in since the moves were first mooted.
Phoenix Group, one of the UK’s largest retirement companies, told the FT on Friday: “We believe it is right to focus on efforts to unlock more domestic investment, but we believe the most sustainable solution lies in creating the right incentives, not mandates.”
It added: “The UK has the talent required but what is needed is a competitive, stable policy and regulatory environment that rewards long-term investment in growth. We’re already allocating significant capital to UK infrastructure, housing, and the energy transition.”
Another large pension provider added: “The problem with powers of mandation isn’t necessarily just what this government might do; it’s also future governments who may inherit these powers.”
One pensions executive previously told the FT the sector had “our arms shoved up behind our backs”, while another predicted that ministers would “create a mechanism in legislation that would allow them to make it mandatory”.
Hunt told the FT he did not expect Reeves to pursue “direct mandation” but to leave the threat hanging if domestic investment continued to lag behind international benchmarks. Pensions bosses say they also expect a “sword of Damocles” approach.
One Treasury official who recalled the Hunt era said the idea of the government telling pension funds where to put their money created “a ton of problems around fiduciary duty, compliance, monitoring and enforcement”.
The official added: “There was also concern that if we elbowed funds into equities they would buy fewer gilts, which created its own problem.” But Labour officials noted that Hunt did not reject mandation when he was chancellor, a point confirmed by Treasury officials at the time.
The Treasury said this week that it would not provide a “running commentary” on its plans, but that its review of pensions investment would consider whether “further interventions may be needed by the government” to ensure investments benefited UK growth.
Torsten Bell, pensions minister, is undertaking a separate pensions review that will explore whether to introduce new legal powers through the Pensions Schemes bill this summer.
