Lord Mayor welcomes landmark agreement to unlock pension funds
The Lord Mayor of the City of London announced the signing of The Mansion House Compact, a commitment by some of Britain’s largest pension firms to allocate a minimum of 5% of defined contribution (DC) funds to unlisted equities by 2030. With the aim of unlocking over £50 billion of new capital by the end of the decade.
Aviva, Scottish Widows, L&G, Aegon, Phoenix, Nest, Smart Pensions, M&G and Mercer, who represent a majority of the DC market, have agreed to deliver on the dual aim of securing better returns for savers and ensuring fast-growing businesses in sectors like fintech and biotech can stay and scale in the UK.
The Lord Mayor will speak alongside the Chancellor of the Exchequer, Rt Hon. Jeremy Hunt MP and Andrew Bailey, the Governor of the Bank of England.
An extract from the Lord Mayor’s speech is found below:
"We need to talk about the elephant in the room, which is having a particular impact on whether companies stay and scale in the UK. And that is our appetite for risk and attitude to business success.
"A sensible aversion to excessive risk-taking that took hold in the wake of the global financial crisis has, arguably, developed into a full-blown allergy to anything deemed remotely ‘risky’. And it’s our innovative firms that are trying to do something new that are suffering.
"Though we’re good at helping companies off the ground, the UK lacks deep pools of accelerator capital forcing them to head to non-UK capital providers to secure scale-up funding.
"At the Chancellor’s request, we’ve been working to build a consensus around the idea of DC pension funds allocating more assets to unlisted equities. A move that will ensure high-growth firms in sectors like fintech and biotech can stay and scale in the UK. And support the development of much-needed new sustainable infrastructure in areas of the country that have felt left behind. While improving the retirement incomes of millions of UK pension savers.
"I’m pleased to announce that this work has reached a new milestone. Tonight, the Chancellor and I watched the CEOs of many of our largest DC pension schemes sign an agreement - the Mansion House Compact - committing them to achieve a minimum 5% allocation to unlisted equities by 2030. With the aim of unlocking over £50 billion of new capital by the end of the decade. They include Aviva, Scottish Widows, L&G, Aegon, Phoenix, Nest, Smart Pensions, M&G and Mercer.
"Signatories to the Mansion House Compact - a joint mission but spearheaded by the private sector - will invest via existing investment vehicles or new ones. And that could include a joint investment vehicle such as the Future Growth Fund - an idea many will have heard me talk about before. The smaller average size of UK funds creates a problem of scale and expertise.
"A new growth fund with critical mass to achieve deep expertise and broad diversification could allow DC funds to share the risks and the benefits of investing in unlisted equities, whilst keeping costs modest. And the City Corporation stands ready to support the formation of such a fund.
"There are valid reasons why our pension system has been conservatively invested for so many years. And I understand why what we’re doing has caused some to pause for thought. But few, even in the pensions industry, could deny the need for reform. And, in the words of the CEO of the LSE, Julia Hoggett, “we’re not asking for radical risk taking we’re just asking that our pension funds do what other established funds do”. A modest - yet meaningful - allocation to unlisted equities done on a voluntary basis, by pension funds that want to get the best returns for savers.
"While we’ve been working closely with the Chancellor on this, I’m delighted the shadow chancellor, Rachel Reeves, has also come out in support of plans to tackle pension reform and get more businesses listing in London. This is a cross-party issue, and whoever wins the next general election will need to carry this work forward to improve people’s pensions, rebuild the UK, and ensure homegrown businesses can thrive here.”
Notes to editors
Please find further information on The Mansion House Compact and the FAQ’s here:
The City of London Corporation is the governing body of the Square Mile dedicated to a vibrant and thriving City, supporting a diverse and sustainable London within a globally-successful UK. www.cityoflondon.gov.uk