Published on 19th May 2025
A ‘Mansion House Accord’ was announced with due fanfare on 13th May 2025 that the heads of 17 managers of UK Defined Contribution (DC) pension funds would allocate a minimum of 10% of their ‘default funds’ to unlisted companies by 2030, of which at least 5% would be UK investments.
Rachel Reeves trumpeted this as a major contribution to the government’s plans for its ‘decade of national renewal’. This decade should see a major spend on the Net Zero transition. As with all of Labour’s ‘achievements’ so far, this one is much less significant than it is made to appear, and could bring serious problems in its wake.
You can download the full analysis here.
The Accord will bring less money onto the table than its announcement inferred, and possibly far less, given the UK’s economic prospects under Labour.
Even if it materialises, the amount announced leaves a major shortfall compared to the funding requirements in the Seventh Carbon Budget, a gap which might be filled by more government borrowing in the absence of other sources than DC pension funds.
The funding of Net Zero and of Ofwat’s new Private Finance Initiative plans of possibly £60 billion per annum will compete with the government’s annual need for new fixed-interest money of £150 billion and drive up the interest rates on both.
At the same time all of the above divert funds away from entrepreneurial investments and wealth creation, and mire the UK economy even further into a ‘rentier’ model reminiscent of the EU.
Consolidation of DC funds and tasking them with public policy objectives wrests control of members’ money from themselves into yet another branch of the quango-bureaucrat apparatus, except that the Pensions Dashboard will enable members to grab control back, deplete the ‘default funds’ that the Accord applies to, and spike Rachel Reeves’ guns.
The resulting fund-switching could then replicate within DC funds the problems that Defined Benefit (DB) funds experienced during and after the gilts market meltdown of October 2022: depletion of quoted assets, unquoted assets starting to dominate, and question marks against the valuation basis of unquoted assets.
The John Lewis DB pension fund is a good example of an ‘After the Tornado’ portfolio with no quoted assets whatsoever:
DC fund members are even more exposed to the liquidity risks around unquoted assets than DB fund members are: they have recourse neither to the employer nor to the Bank of England’s new liquidity facility for Non-Bank Financial Institutions, and could be stuck either unable to access their money from the unquoted assets, or unable to access them at a value that bears any resemblance to what the fund reports showed.
In one respect DC fund members are better off, though: they do not have the risk of DB fund members that Liability-Driven Investments could completely wipe out the fund.
Law, regulation, and accounting remain flawed for both types of scheme. Rachel Reeves seemed to think that DC funds were an El Dorado to be tapped up for Labour’s ‘decade of national renewal’, whereas, due to their lack of recourse to outside parties, there is a strong case to be made that DC funds should not be permitted to make unquoted investments at all.
In that respect the Accord is extremely dangerous for DC fund members and they would be well advised to familiarise themselves with the Pensions Dashboard freedoms that they have and consider making use of them, even if the Pensions Dashboard itself is not yet available to them. That would be a quick and easy way of side-stepping Reeves’ pensions grab before Labour bring about another meltdown.