Pension Funds to Invest Billions in UK Fintech Startups

The investment of billions from UK pension funds into UK high-growth companies, including fintech startups, is a significant and ongoing government-backed initiative.¹ This effort is primarily driven by the Mansion House Reforms, aimed at boosting the UK economy and potentially increasing returns for pension savers by allocating capital to illiquid, high-growth assets like venture capital.²

 

Here is a breakdown of the initiative, key case studies, and common comments/commentary:

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The Initiative: Mansion House Reforms, Compact, and Accord

 

The effort has evolved through several key stages, focusing mainly on Defined Contribution (DC) pension schemes (where the retirement pot depends on contributions and investment returns) and the Local Government Pension Schemes (LGPS).

1. Mansion House Compact (2023): Initially, 11 of the largest UK DC pension providers voluntarily committed to the ambition of allocating at least 5% of their default funds to unlisted equities by 2030.³

    

2. Mansion House Accord (2025): This was a more ambitious commitment involving 17 providers, representing around 90% of active DC savers.⁴ The new target is to invest at least 10% of their default funds in private markets by 2030, with a specific commitment of at least 5% invested in the UK.⁵ This is expected to unlock over £25 billion for UK businesses and infrastructure.⁶

    

3. The Sterling 20 (2025): A partnership of 20 of the UK’s largest pension funds and insurers, focused on channeling savings into key sectors like fintech, AI, and infrastructure, building on the Accord.⁷

    

 

Direct Government Support Initiatives:

 

• Long-term Investment for Technology and Science (LIFTS): An initiative from the British Business Bank (BBB) designed to establish new funds to attract DC pension fund investment into science and technology.⁸

   

• The Growth Fund: A new fund established within the BBB to give pension schemes access to opportunities in the UK’s most promising businesses.⁹

   

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Case Studies and Early Progress

 

Direct, publicly announced investments by individual pension funds into specific, named fintech startups are often limited due to the private nature of venture capital investment. Instead, their investment is primarily channelled through specialist fund vehicles.

 

1. Phoenix Group and Schroders Capital (LIFTS Initiative)¹⁰

 

• Action: Phoenix Group, a major long-term savings and retirement business, committed £250 million of pension investment into a new Long-Term Asset Fund (LTAF) launched by Schroders Capital.
• Context: This was a key part of the government’s LIFTS initiative, matched by a £250 million commitment from the BBB, creating an initial £500 million vehicle projected to grow to over £1 billion.¹¹

   

• Fintech Link: This LTAF is designed to invest in late-stage UK companies across sectors like life sciences, AI, quantum computing, and fintech, providing a direct route for pension money to back innovative firms.¹²

   

• Broader Commitment: Phoenix Group also launched Future Growth Capital as the first private market investment manager to deliver the Compact commitments, pledging £2.5 billion over three years to the UK’s high-growth companies.¹³

   

 

2. Nest Pension Scheme

 

• Action: Nest, one of the UK’s largest pension schemes, committed £100 million to be deployed in UK private markets via Schroders Capital.¹⁴

   

• Broader Commitment: Nest expects to grow its total commitment to UK private markets from around £4 billion to approximately £12 billion by 2030.¹⁵

   

• Fintech Link: This capital supports the financing of high-growth companies, which includes the technology and science sectors where fintech is a major component.

 

3. Mansion House Compact Progress (as of late 2025 update)

 

• Result: Investment in unlisted equities held through the DC default funds of the initial Compact signatories doubled in the first two years of the initiative, growing from £800 million to £1.6 billion.¹⁶

   

• Significance: While still a small proportion of overall assets (around 0.6% towards the 5% initial target), it shows operational progress, with firms launching new LTAFs and establishing new partnerships with private market asset managers.¹⁷

   

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Comments and Commentary

 

 

Positive Commentary (The Proponents)

 

• Boosting Saver Returns: Proponents, including the government and many asset managers, argue that unlisted equities, especially in high-growth sectors like fintech, offer the potential for higher long-term returns and better diversification for pension savers, helping to improve retirement outcomes.¹⁸

   

• Filling the “Scale-up Gap”: Fintech leaders and groups like Innovate Finance have long highlighted the domestic funding gap for high-growth UK companies (Series B funding to exit). Pension fund capital is seen as the “patient capital” necessary to help homegrown fintechs scale in the UK instead of selling early or seeking foreign investment.¹⁹

   

• UK Economic Growth: The investment directly fuels the growth of a key UK strategic sector (fintech), creating jobs, fostering innovation, and cementing the UK’s position as a global financial centre.

 

Cautious/Critical Commentary (The Challenges)

 

• Fiduciary Duty: A primary concern for pension trustees is their fiduciary duty to members—investing in the best interests of savers.²⁰ Any perception of the government mandating investment for political goals, rather than financial returns, is strongly resisted. The focus must remain on generating better risk-adjusted returns.

   

• Liquidity and Valuation: Private market investments like venture capital are illiquid (hard to sell quickly), which is a challenge for DC funds that often offer daily-dealing.²¹ Furthermore, valuing private companies is more complex and less transparent than for public companies.

   

• Performance Concerns: Some commentary notes that, historically, UK venture capital funds have underperformed their US counterparts in delivering large-scale exits and realised returns, raising questions about the quality of the investment pipeline.²²

   

• Focus on ‘Value over Cost’: A major hurdle is the current culture, where many pension schemes and their consultants are focused purely on minimizing fees (the charge cap) rather than maximizing long-term value and net returns, which can disincentivise the use of higher-fee private market funds.