The Mansion House Accord, signed on 13 May 2025, represents a significant commitment by 17 of the UK’s largest workplace pension providers to boost investment in private markets. This voluntary initiative has garnered considerable attention in the pensions industry and beyond.
At its core, the Accord commits signatories to invest at least 10% of their defined contribution (DC) default funds in private markets by 2030, with at least 5% of the total allocated specifically to UK assets. These pension providers collectively manage approximately 90% of active savers’ defined contribution pensions in the UK, making this a potentially transformative initiative for both the pension landscape and the broader economy.
It is important to understand that the Accord builds upon rather than replaces the earlier Mansion House Compact from 2023. The original Compact committed signatories to allocate 5% of their DC default funds to unlisted equities by 2030, with no specific UK allocation requirement.
The economic and investment rationale
The government presents the Accord as a “win-win” that will both boost the UK economy and enhance pension returns for savers. From an economic perspective, the initiative is expected to mobilise approximately £50 billion of pension fund capital into the UK economy by 2030,[1] providing vital investment for growth.
For pension savers, the government argues that private market investments can potentially deliver higher returns as part of a diversified portfolio. The initiative also aims to address a perceived investment gap, as the UK has historically had lower domestic investment from pension funds compared to other countries.
Government commitments to enable success
For the Accord to succeed, the government must deliver on several key commitments:
- ensure a pipeline of suitable UK investment opportunities, addressing concerns about the availability of attractive domestic assets;
- develop a comprehensive Value for Money framework as part of a wider shift in the market from focusing on costs to a focus on value; and
- drive DC pension consolidation to create the scale needed for effective private market investment. Larger pension funds can negotiate better terms and develop the expertise needed to navigate complex private markets.
The fiduciary duty challenge
A critical consideration for pension trustees is how to reconcile the Mansion House Accord commitments with their fiduciary duties. Trustees have a legal obligation to act in the best interests of scheme members, which traditionally means focusing on financial returns.
This creates potential tension with the Accord’s UK allocation requirements as, historically, global investments have outperformed UK-focused investments. Recognising this challenge, the signatories have made it clear that their commitment is subject to fiduciary duty and, where applicable, the FCA Consumer Duty.
Trustees will need comprehensive processes for evaluating, monitoring and reporting on private market investments. This includes robust risk assessment frameworks and clear decision-making protocols.
Furthermore, trustees will need more direct engagement with asset managers and more specific reporting tailored to private market investments. This closer relationship enables better oversight and more informed decision-making.
Voluntary commitment or future mandate?
While the Accord is currently a voluntary initiative, there are concerns about potential future mandation. The government has confirmed in the final Pension Investment Report[2] that it will include reserve powers in the Pension Schemes Bill to set binding asset allocation targets if necessary. This has raised significant concerns within the industry, as mandation could distort markets and undermine trust in the pension system.
The experience from other countries suggests caution. New Zealand’s government, for example, faced significant industry backlash when it proposed mandating domestic investment by pension schemes, ultimately forcing a reconsideration of the approach.
Learning from international examples
The UK’s intended approach draws natural comparisons with pension systems in Australia and Canada, which have higher allocations to private and domestic assets.
Australia’s superannuation system has tax incentives that support domestic investment through dividend tax credits, making it easier for trustees to justify such allocations. However, the performance evidence is mixed on whether the shift to private and domestic assets has delivered superior returns.
Canadian pension funds, often cited as exemplars, are now facing challenges with a lack of investable domestic assets. They have, however, developed sophisticated governance structures to manage private market investments effectively.
Final thoughts
The Mansion House Accord represents an ambitious attempt to redirect UK pension capital toward private markets and domestic investment. Its success will depend on balancing the dual objectives of boosting the UK economy and enhancing returns for pension savers.
For pension trustees, the challenge lies in developing the governance capabilities needed to navigate private markets effectively while fulfilling their fiduciary duties. With the right approach, it may be possible to achieve both goals, but this will require significant investment in expertise, processes and oversight.
The government’s role in creating a pipeline of attractive investment opportunities and developing a supportive regulatory framework will be crucial. Without these elements, the tension between the Accord’s objectives and trustees’ fiduciary duties may prove difficult to resolve.
[1] https://www.gov.uk/government/news/pension-schemes-back-british-growth
[2] https://assets.publishing.service.gov.uk/media/683971d8e0f10eed80aafb3a/27.05.2025_PM_-_final_report.pdf
