When we last examined the Mansion House agenda in January (see here), we noted the tension between voluntary commitments to UK and alternative asset investments and the trade-offs inevitably involved when changing investment strategy. In the background there loomed the prospect of a sweeping reserve power in the Pension Schemes Bill, by which the Government could mandate investments in certain assets (commonly referred to as the “mandation” power).
Things have now moved on. The Bill is now the Pension Schemes Act 2026 and the mandation power is on the statute books – but it has taken a more limited form than when first proposed by the Government. This blog considers the limits on this mandation power.
Alignment with the Accord and the Compact
If the Government decided to exercise the mandation power, it could not require more than 10 per cent of assets by value held in a scheme’s default auto-enrolment fund to be invested in “qualifying assets”, nor more than 5 per cent by value to be invested in assets of a “UK‑specific description”. To put these percentages into context, master trust assets stood at £208 billion last year (covering over 30 million members), with numbers growing.
If these limits look familiar to you, you’d be right. They correspond directly to those set out in the Mansion House Accord, a voluntary agreement signed by 17 of the UK’s largest DC providers to increase investment in unlisted assets, both globally and in the UK. They are also consistent with the earlier Mansion House Compact.
Safeguards
The mandation power was always going to be a reserve power, but other changes have made this very clear. It may be exercised only once, not before 2028, and will lapse entirely if not used by the end of 2032. Even if it is used, the asset allocation regime would fall away at the end of 2035 unless renewed by primary legislation.
Furthermore, before exercising the power, the Government would need to consider:
- A joint assessment by the Pensions Regulator and the FCA on whether market conditions are limiting schemes’ ability to invest in the targeted assets.
- The extent to which schemes are already investing in line with the parameters in the Act and the Mansion House Accord.
- Barriers to investment in the targeted assets and the action taken to reduce or remove these barriers.
A final, further dilution to the power lets the Pensions Regulator disapply the asset allocation requirement where it considers it reasonable for trustees to conclude that compliance would likely not be in members’ best interests.
Limits welcomed, but opposition remains
The industry is broadly aligned that asset allocation decisions should sit with trustees, who must act in line with their fiduciary duties. It has also been clear that if a reserve power is unavoidable, it should be tightly constrained and closely aligned with the Accord. So it is unsurprising that although the new restrictions have been welcomed, opposition to the mandation power itself remains. Julian Mund, Chief Executive of Pensions UK, described it as addressing the organisation’s “most serious concern” and bringing the legislation into line with the Government’s stated intention of acting only as a backstop to the Mansion House Accord.
What comes next?
As the mandation power cannot be exercised before 2028, attention may now turn elsewhere. However, further controversy may lie ahead. The question of which investments would actually qualify towards mandates has been little discussed; we only have some broad parameters around “qualifying assets”, while the Government may frame a “UK-specific description” by reference to location or “any other condition linked to economic activity in the United Kingdom”. In an economy as open and globalised as the UK, that is extraordinarily broad. As so often in law, the devil may well be in the detail. All the more reason for providers and Government alike to make a success of the relatively transparent Compact and Accord.
Many thanks to Lesley Browning and Robin Collins for their help in preparing this post