Business Leaders Push for Stronger UK Investment from Pension Funds

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What’s Happening

  1. Business Leaders’ Demand
    • Over 250 UK business leaders (CEOs, chairs of major companies) have written to Chancellor Rachel Reeves, calling on her to force defined-contribution (DC) default pension funds to allocate at least 25% of their assets to UK investments. (professionalpensions.com)
    • The letter was coordinated by the London Stock Exchange Group, whose chair and CEO (Don Robert and David Schwimmer) are among the signatories. (professionalpensions.com)
    • Some of the signatories include chairs and CEOs of big firms: Barclays, Anglo American, JD Sports, Compass Group, etc. (Reuters)
  2. Why They’re Calling for This
    • They argue that domestic risk capital is essential for UK businesses to grow. (professionalpensions.com)
    • They highlight a dramatic decline in how much UK pension funds invest in UK-listed equities: from 53% in 1997 to just ~4–4.1% in 2025 per their figures. (professionalpensions.com)
    • They warn that without intervention, allocations could fall further — they cite a projection that DC allocations to UK equities could drop to 3.5% by 2030. (pensions-expert.com)
    • The letter claims that by implementing the 25% minimum, about £76 billion could be directed into UK equities (in “today’s money”). (professionalpensions.com)
    • They stress that this proposal would not require extra government spending, and that it would benefit both growth in UK business and savers. (professionalpensions.com)
  3. What Changes Are Already in Play
    • There is an existing “Mansion House accord” (or compact) where pension providers previously committed to investing 10% of DC workplace pensions into private market assets by 2030. (The Guardian)
    • Under that accord, at least 5% of the assets were to be “earmarked” for UK-based investments: in British private firms, infrastructure, property, etc. (The Guardian)
    • On top of this, there are proposals (from an expert panel) for a new government-supported programme called NOVA (“New Opportunities for Venture and Growth Acceleration”) to help DC pension schemes invest in growth capital / venture capital. (BVCA)
    • The Pensions Investment Review (by government) has published a report: part of this aims to reverse the decline in domestic investment by pensions. (professionaladviser.com)
  4. Opposition & Risks
    • The pensions industry is skeptical / pushing back. They argue that mandating 25% in UK investments could undermine returns and isn’t in the best interest of savers. (Reuters)
    • Pensions UK (industry body) says schemes already look for attractive UK investments — but forcing a quota could introduce significant risk. (Reuters)
    • Critics point out that US and other global markets have outperformed UK markets recently (e.g., S&P 500 vs FTSE), making foreign investing more attractive. (Reuters)
  5. Potential Economic Impact
    • Business leaders believe that increasing domestic pension-fund investment would boost capital available for UK companies, helping both public and private firms. (professionalpensions.com)
    • They argue that this would also help savers share in UK growth, not just send their money abroad. (professionalpensions.com)
    • If successful, the policy could reverse decades of disinvestment, strengthening UK equity markets. (professionalpensions.com)

Why It Matters

  • Growth Capital for UK: If more pension money flows back into UK equities and infrastructure, it could support long-term growth, innovation, and jobs.
  • Savers’ Returns: There’s a big debate about balancing national economic goals vs. maximizing returns for pension savers.
  • Policy Levers: The government may use regulation / “mandation” (i.e., force) to achieve this, which is controversial in the pensions industry.

Good question. This is a really active policy debate in the UK right now — and there are a handful of case studies, proposals, and reactions from business leaders. Below is a breakdown of what’s going on, plus some concrete examples and commentary.

Background: Why Business Leaders Are Pressuring Pension Funds

  1. Decline in UK Equity Exposure
    • Business leaders argue that UK pension funds invest very little in UK-listed companies compared to the past. One letter to Chancellor Rachel Reeves noted that pension exposure to UK equities dropped from ~53% in 1997 to just ~4% in 2025. (Professional Pensions)
    • They warn that this underinvestment weakens domestic capital formation, making it harder for UK businesses (public and private) to access growth funding. (Professional Pensions)
  2. The Mansion House Accord (2025)
    • In May 2025, 17 large workplace pension providers (managing a large portion of defined contribution (DC) assets) signed a new Mansion House Accord. (The Guardian)
    • Under the accord, these providers commit to:
      • Allocating 10% of their DC default funds to private market assets by 2030. (ITVX)
      • Of that 10%, at least 5% must be invested in UK-based private markets (e.g., UK businesses, infrastructure, real estate) assuming supply of suitable assets. (ITVX)
    • The government claims this could unlock £50 billion for UK business and infrastructure by 2030. (GOV.UK)
  3. Call for “UK-Weighted” Default Funds
    • A group of 267 business leaders (including CEOs/chairs of major companies) wrote to the Chancellor calling for mandatory allocation of at least 25% of DC default funds into UK investments. (Professional Pensions)
    • They argue this is crucial “fuel” for UK growth – citing weak domestic risk capital and underinvestment. (Professional Pensions)
  4. Structural Reforms: Pension Megafunds
    • The government is pushing to merge many local authority pension schemes into larger “megafunds” (86 local government schemes in England & Wales, per recent proposals) to unlock scale and invest more in UK assets. (euronews)
    • The idea: larger funds have more firepower to invest in long-term, illiquid UK assets (infrastructure, private companies, etc.). (euronews)

Key Case Studies & Examples

Future Growth Capital (Phoenix & Schroders)

  • Phoenix Group (a major retirement business) and Schroders have launched a joint investment vehicle called Future Growth Capital aimed at deploying £10–20 billion from pension money into high-growth, often-unlisted UK businesses over the next decade. (The Guardian)
  • Targeted sectors include clean energy, infrastructure, and fast-growing private UK companies. (The Guardian)
  • Phoenix’s CEO, Andy Briggs, said savers’ money could work harder: supporting British business and delivering returns. (ITVX)

London CIV & British Growth Partnership

  • London CIV (a pooled Local Government Pension Scheme (LGPS) vehicle) announced it will work with the British Business Bank to help launch the British Growth Partnership. (British Business Bank)
  • The fund aims to invest in early-stage, high-growth UK companies (via private equity). (British Business Bank)
  • London CIV’s engagement suggests a practical, institutional route for public pension capital to flow into UK-scale-up businesses. (British Business Bank)

Pensions Giants Investing in Infrastructure & Housing

  • According to recent reports, three big pension players committed £3 billion to UK housing and infrastructure:
    • Legal & General (L&G): £2 billion over five years toward housing and infrastructure. (Investing.com UK)
    • AustralianSuper: £500 million into UK residential developments (student housing, co-living, rental). (Investing.com UK)
    • Nest: £500 million to its private equity partnership (with Schroders), with about £100 million earmarked for UK firms. (Investing.com UK)
  • The rationale from these funds: long-term, stable returns + social impact (e.g., delivering more homes). (Investing.com UK)

Commentary & Business Leader Quotes

  • Rachel Reeves (Chancellor) welcomed the Mansion House Accord, saying pension funds investing in UK infrastructure, startups, and clean energy can drive economic growth, boost people’s pension pots, and help secure the UK’s future. (ITVX)
  • Torsten Bell (Pensions Minister): argued that this is not only about pensions, but about “the investment our future prosperity depends on.” (ITVX)
  • Yvonne Braun (ABI – Association of British Insurers): highlighted that pension providers are formalising a “long-term ambition” to invest in innovation infrastructure, diversify investments, and support UK growth. (ITVX)
  • Lorna Blyth (Aegon UK): emphasized that a steady pipeline of high-quality UK private assets (infrastructure, SMEs, etc.) is essential to make these commitments credible; she called for collaboration (e.g., with the British Business Bank) to scale opportunities. (ITVX)
  • Andy Briggs (Phoenix): as noted, he believes channeling pension money into UK growth companies is a win‑win — for savers and for the economy. (The Guardian)

On the criticism side:

  • Some argue mandating pension funds to invest in UK equities or private assets could conflict with trustees’ fiduciary duties. (ITVX)
  • There are skeptics about whether there is enough high-quality UK private investment opportunities to absorb all the pledged capital.
  • Others worry about risk for savers: pushing into less liquid or riskier UK investments could backfire if not managed well. (Reddit)
  • Meanwhile, some pension giants (or their leaders) resist being “forced” into allocations: per reports, not all pension managers want to be strong‑armed. (The Times)

Analysis: Potential Impacts & Challenges

Positive Impacts (if things work as business leaders hope):

  • More long-term capital for UK infrastructure (housing, transport, clean energy), which is often lacking.
  • Boost to innovation/startups: pension money flowing into growth equity could help scale promising UK businesses.
  • Economic growth: by mobilizing domestic capital, this could reduce reliance on foreign investors and strengthen UK financial autonomy.
  • Better pension returns (potentially): private markets often offer higher risk‑adjusted returns over the long term (though not always), so savers might benefit.

Challenges / Risks:

  • Fiduciary duty vs policy goals: Pension trustees must act in the best interest of savers, not necessarily in line with industrial policy.
  • Liquidity risk: Private assets are less liquid than public equities — they may be harder to exit if needed.
  • Asset supply: Do UK private companies and infrastructure projects have enough “investible” opportunities to absorb all the promised capital?
  • Governance risk: Who picks which UK businesses and infrastructure projects get funded? There’s potential for political or market distortions.
  • Scale-up risk: Even with “megafunds,” coordinating many pension schemes is complex; not all may agree, and some may resist consolidation.

Why Business Leaders Are So Vocal Now

  • Many CEOs and business leaders believe domestic capital is drying up, especially from pension funds, which traditionally were big backers of UK public and private markets.
  • The UK economy is under pressure to grow: by getting pension savings more aligned with growth capital, leaders see a lever to drive long-term, sustainable investment.
  • There’s a political window: with the government pushing pension reform (megafunds, mandating, etc.), industry players see an opportunity to shape how that capital is used and ensure it backs UK businesses.
Categories: GB News, UK News