Jeremy Goodwin: Once a government has crossed the rubicon and introduced mandation, it will be easier for future governments to go further
The latest of the Society of Pension Professionals’ (SPP’s) regular columns looks at the government’s inclusion of an investment mandation power in the Pension Schemes Bill.
The government has long said that it would like to see more UK pension assets invested towards supporting UK economic growth.
This was reflected in the May 2025 Mansion House Accord, which saw seventeen of the largest workplace pension providers in the UK (almost half of whom are SPP members) sign a voluntary expression of intent to achieve a minimum 10% allocation to private markets across their main default funds by 2030, with at least 5% allocation to UK private markets.
The BVCA's Investment Compact for Venture Capital & Growth Equity seeks to complement and support the Accord. Over 100 UK venture capital and growth equity fund managers have committed to partner with UK pension scheme investors to attract them as limited partners in their funds and to produce effective investment structures for pension schemes to invest.
Despite these initiatives, the government has taken the unprecedented step of including a power to mandate that a minimum proportion of the assets held within DC master trusts and group personal pension plans are invested in private assets, including in the UK.
Should the government do this?
In the SPP's view, no.
For centuries the courts have supervised how trustees exercise their investment powers. The "prudent person" principle sits at the heart of this. This requires trustees to invest the assets in their care in a way that a prudent person would invest them on behalf of another person for whom they feel morally bound to provide. Mandation would drive a coach and horses through this (and through the Consumer Duty for providers of group personal pensions (GPPs)).
Once a government has crossed the rubicon and introduced mandation, it will be easier for future governments to go further. This is significant, particularly as the sunset provisions in the Bill mean the power to mandate will be exercisable throughout this Parliament and the next.
Is it in member's interests?
A recent report by WPI Economics, The scale of it, commissioned by some of the largest asset owner pension funds in the UK, highlights the importance to member outcomes of independent investment decision-making. The report shows artificially inflating the price of UK investments due to a limited pool of suitable opportunities, risks creating volatile pension values due to overexposure to systemic economic risks and potential long-term underperformance of funds.
The message to the government is clear: don't mandate. Instead, focus on scale, facilitate a pipeline of investment opportunities that make the UK more attractive to investment, offer fiscal incentives and improve planning system bureaucracy and industrial strategies.
Will the government do this?
The government has said it plans to introduce a "reserve power" which it will only look to exercise if providers do not honour their commitments under the Mansion House Accord.
As things stand, however, the Bill will require schemes to meet the so-called "asset allocation requirement" in order to continue to operate as an auto-enrolment scheme. The government has said this is not its intention and it has tabled amendments to turn this requirement into a reserve power. But these amendments do not yet go far enough although further amendments are likely to give effect to the government's stated objective. Assuming this is the case, the government will initially rely on the threat of mandation to achieve its aims.
However, mandation cannot be ruled out, particularly as it seems unlikely the government will be able to push through the policy changes needed to facilitate a sufficient pipeline of investment opportunities in the near future.
If the government takes this unprecedented step, it is important it considers the timeframes for reaching any minimum thresholds to avoid disorderly investment transitions and driving increased demand that outstrips supply. It should also ensure trustees and providers have a statutory "safe harbour" so they are immune from member challenge if, for example, performance is less strong than would have been obtained from alternative investments.
That said, let's hope the power contained in the Bill when it receives Royal Assent is (and continues to serve as) a deterrent which encourages, rather than coerces, schemes to invest more in the UK.
Jeremy Goodwin is an SPP member and a partner and head of pensions at Eversheds Sutherland
