Bank of England governor Andrew Bailey has openly challenged the Government’s policy of mandating pension scheme investment in private market assets, casting doubt over whether the plans will be implemented.
According to the Press Association, Bailey, has today said: “We’ve had a low level of pension fund investment in the economy and I think structural changes to the pension industry are helpful in this effect. However, I do not support mandating, I don’t think that’s appropriate. I think reforming the pensions industry does require a lot of heavy lifting but it needs to be done.”
Bailey stressed that he hopes changes will be ‘natural’”.
Former pension minister Steve Webb, a partner at LCP, has described Bailey’s comments as a ‘nuclear’ intervention that could torpedo the Government’s flagship policy.
The intervention comes days after the first reading of the Pension Schemes Bill, which includes a clause which would allow the Government to tell DC pension schemes how to invest. The aim of the clause, which the government says is a backstop power which it hopes not to use, would be to force schemes to invest a minimum proportion in assets such as UK infrastructure and UK private markets.
So far, progress on driving forward investment in these areas has been via voluntary agreements such as the recent Mansion House Accord commitment by 17 schemes and providers to invest 10 per cent in private assets, of which 5 per cent would be in the UK. That agreement followed 2023’s Mansion House Compact, which had a narrower target.
Corporate Adviser Intelligence’s recent Private Markets report found that less than half of the UK’s biggest multi-employer DC pension providers had private market asset allocations in their largest default at the end of 2024 — 17 months after the Mansion House Compact.
The Government controversially decided to give itself a power to force schemes to invest in a particular way, partly to put pressure on providers to meet these voluntary commitments.
Webb said: “The governor will not have chosen lightly to be so critical of government policy, and his ‘nuclear’ intervention will be very unwelcome at DWP. But the governor speaks for many in thinking that the government is crossing a line if it presses ahead with plans to tell pension schemes how to invest.
“Whilst pension assets can certainly be used more productively, it is ultimately for the trustees of pension schemes to decide how to invest in the best interests of their members, and not for ministers to tell them how to invest. This challenge raises serious questions about whether this policy will survive scrutiny in the House of Commons and House of Lords over the coming months”.
