Key Takeaways
- • Mercer UK chief executive Benoit Hudon, whose firm manages £648bn in assets, warned that the government's proposed pensions deal will not boost UK growth unless a stronger pipeline of attractive domestic investment opportunities is offered.
- • The Labour government is poised to set a target for pension funds to invest five per cent of assets in domestic projects by 2030 under 'Mansion House Compact II', with the new deal raising the private-markets target to ten per cent, half of it for the UK.
- • Hudon urged tax incentives, including reinstating tax credits on dividends paid by pension funds on UK share purchases, a reform the PLSA has also called for, and argued against investment mandates.
- • Industry sources say the current Mansion House proposal, which could be announced as early as the following Tuesday, will not mandate the five per cent UK allocation, though executives fear 'naming and shaming' tactics.
Summary
Benoit Hudon, chief executive of Mercer UK, told City AM that the government's proposed pensions deal will not boost growth unless better UK investment opportunities are put on offer. Mercer UK manages £648bn in assets. Hudon said there is currently no pipeline of projects capable of delivering returns for members that are equal to or better than alternatives available elsewhere at that scale, and he called on Chancellor Rachel Reeves to set out a clearer strategy on the projects the government wishes to deliver, describing a strong selection of assets as a "precondition" for the agreement to work.
The Labour government is poised to set a target for pension funds to invest five per cent of their assets in domestic projects by 2030 under a new agreement dubbed 'Mansion House Compact II'. The original compact, introduced under former Chancellor Jeremy Hunt in July 2023, drew 11 signatories committing to invest at least five per cent of their funds in private markets by the end of the decade. The new deal raises that target to ten per cent, half of which will be devoted to the UK, and over a dozen pension funds are expected to sign up given a lower bar to join.
Hudon argued that the government should set out what infrastructure or projects it wants to prioritise, and that pension funds need more time to build up private-capital investments. He also urged tax incentives to offset the costs of investing in the UK, backing a PLSA call to reverse a Gordon Brown-era policy that removed tax credits on dividend payments made by pension funds on UK share purchases. He pointed to Canada and Australia, where mandates on local infrastructure investment are not set, and warned that mandation risks undermining the intended outcome for savers, favouring a 'healthy pipeline' of opportunities combined with incentives.
Industry sources told City AM that the current Mansion House proposal, which could be announced as early as the following Tuesday, will not mandate pension funds to invest five per cent of assets in UK-based funds. The Financial Times reported that executives fear the government may use 'naming and shaming' tactics instead. Phoenix Group chairman Sir Nicholas Lyons, an architect of the first compact, said the private sector should be left to make the right decisions, while the government should retain the threat of mandation. Aviva, Nest, Scottish Widows, Aegon and NatWest Cushon have not commented on whether they will withdraw from the pact, and the Treasury and Department for Work and Pensions are reviewing further reforms ahead of the Pension Schemes Bill.
The Labour government is poised to set a target for pension funds to invest five per cent of their assets in domestic projects by 2030 under a new agreement dubbed 'Mansion House Compact II'. The original compact, introduced under former Chancellor Jeremy Hunt in July 2023, drew 11 signatories committing to invest at least five per cent of their funds in private markets by the end of the decade. The new deal raises that target to ten per cent, half of which will be devoted to the UK, and over a dozen pension funds are expected to sign up given a lower bar to join.
Hudon argued that the government should set out what infrastructure or projects it wants to prioritise, and that pension funds need more time to build up private-capital investments. He also urged tax incentives to offset the costs of investing in the UK, backing a PLSA call to reverse a Gordon Brown-era policy that removed tax credits on dividend payments made by pension funds on UK share purchases. He pointed to Canada and Australia, where mandates on local infrastructure investment are not set, and warned that mandation risks undermining the intended outcome for savers, favouring a 'healthy pipeline' of opportunities combined with incentives.
Industry sources told City AM that the current Mansion House proposal, which could be announced as early as the following Tuesday, will not mandate pension funds to invest five per cent of assets in UK-based funds. The Financial Times reported that executives fear the government may use 'naming and shaming' tactics instead. Phoenix Group chairman Sir Nicholas Lyons, an architect of the first compact, said the private sector should be left to make the right decisions, while the government should retain the threat of mandation. Aviva, Nest, Scottish Widows, Aegon and NatWest Cushon have not commented on whether they will withdraw from the pact, and the Treasury and Department for Work and Pensions are reviewing further reforms ahead of the Pension Schemes Bill.
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