The UK government is urging pension funds to allocate 10% of their assets to British equities, both listed and unlisted, as part of a revised Mansion House Compact.
Government’s Pension Investment Strategy
Pensions Minister Torsten Bell has proposed a voluntary 10% UK investment commitment, according to industry insiders. However, officials hint at possible mandates if firms do not comply voluntarily.
- Why it matters: UK pension funds currently invest just 4% of assets in domestic stocks, compared to a 10% global average (New Financial report).
- Government’s goal: Increase UK investment, boost economic growth, and support homegrown businesses.
Mansion House Compact 2: Key Details
- Announcement expected: Late June or early July 2025.
- Expanding commitments: The 2023 Mansion House Compact required 5% of pension assets in unlisted equities by 2030. The new version seeks a broader domestic investment focus.
- Labour’s stance: The party is conducting a Pension Investment Review, with final proposals due this spring.
Pension Funds’ Reaction & Challenges
While some fund managers support a 5-10% UK allocation, others resist government pressure:
Pro: Supports UK economic growth & increases funding for British businesses.
Con: Managers worry about limited investment opportunities & government overreach.
The City of London Corporation is leading industry discussions, aiming to:
- Expand the number of signatories.
- Introduce a reporting system to track UK investments.
- Set a final domestic allocation target.
The Bigger Picture: UK’s Economic Growth Strategy
The UK government sees underinvestment in British businesses as a major growth challenge.
- Chancellor Rachel Reeves has increased public spending & deregulation to attract private investment.
- A higher UK pension investment would align with these efforts, unlocking billions for economic expansion.
What’s Next?
The final Mansion House Compact 2 terms will be negotiated in the coming weeks. If fund managers don’t voluntarily commit, government mandates may follow.
