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The minister uses strong arm tactics to pressure pension funds and respects the proposed “voluntary” commitment to invest more in UK assets, industry figures argue.
In the agreement signed next month, the pension fund agrees to allocate 10% of its assets to private funds by the end of the decade, with half in the UK.
However, industry executives say the Treasury has warned them that if pension funds fail to meet their new targets, they may require requirements.
“We’re pushing our arms up behind our back,” said one pension executive.
Pension reforms are part of a series of urban changes planned by Rachel Reeves. People with knowledge of the event said the Prime Minister will set up a financial services strategy during his Set Piece Mansion House speech in the city on July 15th.
Reeves hopes to mobilize tens of millions of pounds of pension fund assets to drive growth and increase investment in fast-growing companies, claiming this will also increase the returns of savers.
The first step expected on May 6th will reveal that Reeves and the Pension Fund bosses will agree to a voluntary goal called the Mansion House Compact II.
However, Minister of Reeves and Pensions Torsten Bell is also conducting another pension review this summer, exploring whether new legal powers will be introduced through the Pension Plan Bill.
The pension fund boss doubts whether the minister will resort to using the law to tell him where he will invest.
However, they believe that other measures such as league tables and “naming and embarrassment” can be used by the minister.
Former conservative Ir Jeremy Hunt, who hosted the first apartment house compact with a pension fund in 2023, said he hopes Reeves will retain the idea that the measure will be mandatory as a last resort.
“The most likely next step is not a direct mission, but a public threat that will continue to be a few years later if domestic investment continues to slow international benchmarks,” Hunt said.
With his first agreement in 2023, 11 pension funds agreed to invest at least 5% of the default fund’s assets in the private market by 2030. Reeves revealed that she wants to set more ambitious goals.
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One pension fund executive said that legally mandates levels allow you to “open a can of worms,” adding, “What can I do to put money into proven assets over a period of time to achieve a lower return?”
“I think there’s a Damocles sword approach to encourage greater efforts,” another industry executive said. “New targets will be voluntary, but they can create mechanisms in the law and mandate them.”
The Treasury said it would not “provide an ongoing commentary” about the work, but it said it would consider whether the pension investment review would “have the possibility that further intervention would be required by the government” to ensure that the investment would benefit UK growth.
