Michael Moore's Outlook on investment mandation for pension schemes
Who likes being told what to do? I guess it depends a lot on the context, in truth. But in ‘the west’ we tend to start from a small ‘l’ liberal perspective where freedom and choice are core to our way of life.
‘Free markets’ are certainly something we celebrate and we have decades (indeed centuries) of evidence of the importance of market economies underpinning successful, long-lasting democracies across the globe.
For its part, private capital has certainly thrived, and contributed most, in the countries where market economies are strongest.
But we are never far away from tension about the boundaries of those economic freedoms, given the gazillion laws, rules and regulations which characterise most countries in Europe and north America.
Right now we have a critical worked example of that tension as the UK government has been finalising major pension reforms.
These, amongst other things, will transform how pension schemes invest in assets on behalf of their beneficiaries. The proposed ‘megafunds’ for ‘defined contribution’ schemes, and the ‘megapools’ for local government schemes, will create capacity and capability to invest across a wider range of assets than before.
Given how under-invested UK pension funds are in private capital, this is a huge opportunity. With 16 times as much international pension capital invested in UK private capital funds compared to indigenous capital, this reform matters.
The government cares about this for two very substantive reasons. Firstly, savers need to have the best chance possible to maximise the returns from the contributions they make to their pensions. Whether it’s the out-performance of private equity and venture capital over sustained periods, or the benefits of greater diversification, there is a big prize in prospect here.
Quite separately, the economy needs substantially more capital to drive economic growth and jobs. And in the sectors of the economy where this matters, the UK’s pension capital pools can be a significant part of the response.
So why the tension? Well, it is fair to say that the government is not overly-confident that the pension system is on track to move at sufficient pace to make a meaningful difference on either count.
For evidence government ministers scan the voluntary initiatives which have emerged with significant fanfare in the past few years. The ‘Mansion House Compact’ set an ambition to see 5% of default funds allocated to ‘unlisted equities’ by 2030. Similarly, the ‘Mansion House Accord’ last year extending the target to 10% investment in private markets.
If there was a metric for engagement between the worlds of pensions and private capital, it would look stellar. In good faith and with a lot of energy, there is no shortage of effort in tackling the barriers to investment and addressing the commercial challenges and cultural changes needed.
So far, so good. Except that actual progress has been slow. The baseline figure for the 5% Compact target was 0.36%. Last year it reached 0.6%. A bit to go, then.
Which brings us back to the tension between free markets and the regulation within which they operate.
In this very specific case, the government has determined that to back up the voluntary efforts of the major players in the pension industry, or stiffen the collective resolve, there needs to be a ‘reserve power’ to mandate investment strategies, if targets are not met.
To put it mildly, there has been a furious reaction to this from the pensions industry. And we get why. The principle of ‘mandation’ is a blunt instrument striking at the principles which are at the core of private sector investment strategies. Or, indeed at the idea of choice which as at the heart of any free market system.
And if international pension schemes were mandated to invest only in their own jurisdictions, our industry would never have developed to the scale it has in recent decades. In truth, a forced investor is not someone who will have any sense of the alignment of interests which is also fundamental to the success of our industry.
As the legislation has approached its conclusion in recent weeks, we have made these reservations plain. From their perspective the government appears to have inserted the reserve power due to the slow pace of progress. Having set out their stall, ministers backing down on having a reserve power risks sending the wrong message about how important this investment agenda is. Clearly, the most important thing is to build rather than halt momentum as policy choices are weighed up.
We are confident our industry has a compelling proposition for pension savers. We need to avoid a philosophical debate about ‘mandation’ does not risk the progress we need to see. Watch this space.
Michael Moore
Chief Executive, UK Private Capital
This article was originally published on 13 April 2026 on the Private Equity News website here.
