Scottish Widows abandons Mansion House pension funds agreement
One of the UK’s largest pension funds has ditched a key agreement seen as crucial to Chancellor Rachel Reeves’ push to drive growth.
Scottish Widows has not signed up to the second iteration of the Mansion House Compact, despite having thrown its weight behind an earlier version of the plans.
The original pact saw 11 pension funds agree to invest five per cent of their assets in private markets.
The new agreement, which has been dubbed the Mansion House Accord, will see major pension funds including Phoenix and Aviva commit to invest ten per cent of their assets on private markets, with half of that portion devoted to UK projects.
Scottish Widows has set up a separate asset fund which it hopes to unveil by the end of the year.
In a statement provided to City PM, a spokesperson for Scottish Widows said it was “great to see” an agreement be made on furthering investment in the UK.
“Later this year we’ll share details on further investment into innovative UK business,” the spokesperson said.
It was also pointed out that the pension fund has extensive long-running investments in UK equities totalling around £5.5bn.
The Chancellor has described the Accord as a “bold step” to achieving growth, with 17 signatories voluntarily agreeing to the plans.
There had been rumours in the City that one or more pension funds could drop out as signatories in the lead-up to today’s announcement.
Pension fund pushback
Several firms previously signalled their intention to invest in UK assets, including Aegon and NatWest Cushon which both said they would invest in British companies alongside the state-backed British Business Bank.
Aviva launched a venture capital arm in September last year in response to the “UK’s supportive policy environment”, as Aviva Investors boss Mark Versey put it.
But pension fund bosses have raised the alarm about the lack of appropriate investment opportunities available in the UK.
Mercer UK chief executive, Benoit Hudon, suggested that there was not a sufficient “pipeline” to bring good returns for savers.
In an interview with City PM, Hudon said the government had to be clear about which areas of the UK economy should be backed.
But a key area of concern has been around the threat of mandation, whereby pension funds would be forced to invest in UK assets.
“As much as we believe that it’s a good thing to promote investments in the local economy and to use the capital – the trillions invested in pension funds in the UK – to drive the economy forward, mandation risks coming in the way of delivering the intended outcome [for savers],” Hudon said.
“The best way to get the commitment is providing the right incentives through a good, healthy pipeline of opportunities, combined potentially with tax incentives.”
Mandation will not be included in the new agreement but reports have suggested that the government could ‘name and shame’ funds that fail to hit targets.