In a major shift that could reshape how your pension is invested, the UK government is pushing pension funds to allocate more money into domestic projects like infrastructure, housing, and start-ups. It’s part of a growing debate: should your retirement savings be used to help the UK grow? Or should they strictly chase the best possible returns?
Let’s unpack this “power struggle” and why it matters to your future.
Mansion House Compact
The Mansion House Compact is a voluntary agreement between the government and major pension providers. First announced in 2023 and strengthened in 2024, it asks funds to invest at least 10% of assets in private markets, including:
- UK-based infrastructure projects
- Green energy
- Startups and innovation
- Growth-focused businesses
By 2030, the goal is to unlock £50–£80 billion in capital to fuel UK economic growth. It sounds great for the country—but there’s a catch. Pension trustees are legally bound to act in your best financial interest. And investing at home doesn’t always mean the best returns.
Why Are Pension Funds Investing Abroad?
Right now, less than 6% of pension fund assets are in UK-based productive assets. In the 1990s, that number was over 50%. So what changed?
- Global Diversification: International markets often offer better returns.
- Political & Economic Uncertainty: The UK has been seen as a riskier bet in recent years.
- Regulations: Legacy rules often steer funds toward low-risk, liquid investments.
In short, the UK just hasn’t been as attractive—until now.
Government Strategy
Here’s how they plan to change that:
1. Mansion House Compact II
This new phase calls for:
- 10% of assets in private markets
- 5% in UK-based investments
- Transparent reporting by pension providers
2. Consolidation of Local Government Pension Schemes (LGPS)
There are currently 86 LGPS schemes managing £1.3 trillion. The government may merge them into larger “megafunds” with more flexibility and appetite for UK investments.
3. Incentives
Potential tax breaks and regulatory tweaks are being explored to make UK-focused investing more appealing.
Mixed Industry Reactions
Some of the biggest pension firms, like Legal & General and Phoenix Group, support the plan—but only if it stays voluntary. They believe UK investments can offer good returns, but not at the expense of fiduciary duty.
Others are cautious. One CEO said it best: “There’s a difference between patriotism and prudence.”
How This Affects You
Whether you’re a young worker or nearing retirement, here’s what this policy shift means:
1. More Growth Opportunities
Private equity and infrastructure projects can outperform public markets over time—especially if managed well.
2. Higher Risk
Investing in early-stage UK businesses or infrastructure is riskier than buying government bonds or global index funds.
3. More Transparency
Pension providers that sign the Compact will need to report how they’re investing your money. That’s a win for accountability.
4. Potential Political Interference
Critics fear the government might eventually force funds to invest at home, even if the returns aren’t great.
What You Can Do
Here’s a quick step-by-step guide to take control of your pension in this changing landscape:
Step 1
Log in to your provider’s platform or call them. Ask for a breakdown: How much is in UK assets? How much is global?
Step 2
Look on the fund’s website or check Mansion House Compact updates via GOV.UK.
Step 3
UK-focused investments may mean higher volatility. Are you okay with that, or do you prefer safety and stability?
Step 4
This policy could evolve quickly. Sign up for updates from your pension provider or financial news sources.
FAQs
What is the Mansion House Compact?
It’s a voluntary deal asking pension funds to invest more in UK assets.
Will my pension be forced to invest in UK projects?
Not yet. All changes are currently voluntary.
Does UK investing mean better pension returns?
It could—but higher risk comes with it.
How can I see where my pension is invested?
Contact your provider or log in to your pension account online.
Why are UK pensions not investing locally?
Global markets offer more growth and lower risk than the UK currently does.
