The House of Lords has voted to remove the government's power to mandate the asset allocation of pension schemes from the Pension Schemes Bill.
Under the government proposals, ministers could require DC schemes to invest their default funds in specific asset classes, seeking in particular to increase investment in “productive finance” such as infrastructure, startups, and private markets.
The government said the decision would boost economic growth and improve pension outcomes simultaneously. Policymakers argue that UK pension funds are overly invested in low-risk assets and underinvest in domestic opportunities. By redirecting capital, the government hopes to channel billions into UK businesses while potentially achieving higher long-term returns for savers.
However, critics argue mandation risks undermining fiduciary duty, as trustees are legally required to act in members’ best interests, not government policy goals.
There are also concerns about politicisation of investment decisions and the danger of forcing funds into unsuitable or underperforming assets.
Recent research from the ABI revealed widespread uncertainty over the proposals, with an overwhelming 72% of UK adults having little or no confidence in the government to make the right decisions about how their pension is invested. Only 1% have a lot of confidence.
46% of adults aged over 45 think requiring pension funds to invest in certain assets would negatively impact the amount of money they’ll have in their retirement, with just 5% believe the requirements would have a positive impact.
The Bill will soon return to the Commons for MPs to reconsider the wide-reaching nature of these powers.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “The Lords’ amendment to remove the power in the Pension Schemes Bill for government to direct how retirement savings are invested is a win for savers. Having the power on the statute book would expose millions of workers’ retirement savings to political cycles and undermine the duty of pension trustees to act at all times in the interests of savers.
“Pensions UK’s preferred method to drive investment in UK markets is a voluntary approach supported by improvements to the investment environment.
“The Mansion House Accord, a commitment by 17 of the largest UK pension providers to back unlisted UK and global investment opportunities where they are in the best interests of savers, shows there is already strong support.”
