Workplace pension trustees fixating on low-cost fees “tie the hands of schemes” and make it difficult for them to invest in high-growth companies, the pension trade body has said, after the government’s push to get pension money flowing into equities showed minimal progress.
Zoe Alexander, chief policy officer at trade body Pensions UK, said the focus on securing ultra-low fees for clients is restricting higher allocation into assets such as private equity and debt.
Her warnings came as the pensions industry updated the City on its progress toward the so-called Mansion House Compact and Accord, in which the country’s top pension money managers, including Aviva and Aegon UK, said they would allocate a chunk of their assets to private market investments.
At the time of the Accord’s launch in May last year, then Chancellor Rachel Reeves said the agreement would deliver funding for “major infrastructure, clean energy, and exciting startups”.
In the update today from the Association of British Insurers (ABI), which is administering the scheme, the 17 signatories of the Mansion House Accord were said to have allocated 3.3 per cent of assets into UK private markets by December 2025, equating to £11.1bn.
Property dominates
But so far the vast majority of committed capital has been invested into property, which dominated the allocations and came to around 70 per cent.
Signatories had invested £8bn into property and real estate, while an additional £1.3bn was invested into infrastructure. In contrast, just £500m was invested into private equity.
“If you’ve got employers and employee benefit consultants (EBCs) selecting a price [for the cost of managing schemes’ money], that then really ties the hands of schemes and makes it much harder for them to invest in these kinds of asset classes,” Alexander said in an interview with City AM, referring to investment in equities and high-growth companies.
“Which is why we really need to get the employers and EBCs…making more rounded decisions.”
Money managers who invest in venture capital and private equity typically charge higher fees than those investing in asset classes like real estate.
Yvonne Braun, director of long-term savings and health and protection policy at the ABI, said the gap between private equity and property reflected the asset’s status as a “less established” route, but argued investing in property is beneficial for the economy.
Investment-grade projects
Signatories are subject to the Financial Conduct Authority’s (FCA) Consumer Duty and other fiduciary duties, meaning any investments must align with obligation to the saver’s financial interests.
But there is a “disparity” to how performance fees are treated depending on if a company is regulated by the FCA or The Pensions Regulator (TPR), a conflict Braun branded as “self-evidently not helpful”.
Elsewhere, Alexander raised concerns over blocked-up capital, citing the “perennial issue” of the UK lacking investment-grade growth projects.
“Trying to get the pipeline moving fast enough to come up with investment grade opportunities to make sure capital can be deployed as soon as possible…that’s a challenge,” she said.
Compact uproar
Progress against the Mansion House Compact was also lagging well behind its target, according to the update from the ABI.
The Compact was enacted in 2023, signed by 11 signatories who agreed to invest a minimum of five per cent of their default funds into unlisted equities.
But in the three years since coming into force, total allocation has reached just 0.85 per cent, amounting to £2.7bn.
UK Private Capital executive, Michael Moore, said it was “disappointing” to see limited investment in private equity.
He said: “At the current rate of progress, the Compact target will be missed by a decade or more.
“We are in danger of missing a once-in-a-generation opportunity for sovereign UK leadership in tech and thousands of new jobs in the economy,” he said.