Twenty-two employers, mostly from the finance sector, have pledged to prioritise net returns and request greater transparency on private market allocations when selecting or reviewing a defined contribution pension provider.

The voluntary Employer Pension Pledge is led by Lord Mayor of London Alastair King, in partnership with large employers and pension industry representatives who want to maximise value “rather than focusing on cost reduction when selecting or reviewing pension providers”. The initiative comes after an employer duty to review schemes was not included in the pension schemes bill. 

The pledge will be signed by the Lord Mayor at the Mansion House Financial and Professional Services Dinner on Tuesday. It is separate to the 2023 Mansion House Compact and this year’s Mansion House Accord but, like these, aims to drive investment in private assets which tend to come with higher fees for a potentially higher return or a loss. The former two initiatives were voluntary commitments by providers to invest a percentage of assets into private markets, the latter also pledging to ensure half of this is in the UK, while this latest agreement is meant to drive the demand side. 

“Employers have always played a decisive, if underappreciated, role in shaping retirement outcomes. This Pledge is about making that role visible, responsible, and focused on value,” said King, who hopes to add further names to the list of signatories. 

Many of the current signatories have an interest in increased private market investment, particularly in the UK, consisting mainly of UK financial services companies.

They are: Aberdeen Group, Aviva, BT, Canada Life UK, First Group, Goldman Sachs, Legal & General, London Stock Exchange Group, M&G, Mitie, Nationwide Building Society, NatWest Group, Octopus Energy, Octopus Investments, Phoenix Group, Prudential, Samworth Brothers, Santander, Schroders, Standard Chartered, Tata Steel UK and Tesco. 

Chancellor Rachel Reeves said: “We welcome this commitment from major employers to boost returns for their employees. To support this, we are creating pension megafunds to unlock more investment and boost people’s pension pots, going further and faster to drive growth as part of our Plan for Change to put more money into people’s pockets." 

Reeves is due to give her Mansion House speech on Tuesday, where she is expected to announce the delayed second part of the government's Pensions Review around retirement adequacy.

It is normally employers, not employees, who choose which pension scheme workers are invested in, noted pensions minister Torsten Bell.   

“So I welcome this pledge to encourage employers to focus on what matters most to their workers: how fast pension pots grow,” he said.

In its 'Financial Services Growth and Competitiveness Strategy' published today, the government highlights its efforts to drive "productive investment" such as infrastructure, including through a new value for money regime and a time-limited reserve investment power in the pension schemes bill allowing it to set asset allocation targets for DC schemes. The report states that the latter "will address the collective action issue holding back private investment".

Conservative MP Kit Malthouse recently called the various measures in the bill "government procurement by the back door".
   

   

The Employer Pension Pledge is supported by the pensions industry’s lobby group Pensions UK, the Association of British Insurers, TPT Retirement Solutions, the Confederation of British Industry and the Federation of Small Businesses. 

Tina McKenzie, policy chair at the FSB, said: “Now that all 2m small employers have navigated auto-enrolment, it's important that all the workplace pension schemes they have set up deliver at least adequate performance, contributing towards their employees' retirement. We are, however, concerned that returns from many providers' funds do not. So we welcome that the City of London Corporation has led the way with its pledge, initially signing up a number of major large employers to press for good returns. This could have a positive knock-on effect for smaller employers seeking improved schemes for their employees.” 

Pensions UK’s director of policy and advocacy, Zoe Alexander, said: “The Employer Pension Pledge is a welcome initiative, demonstrating that leading employers recognise the potential for higher net returns and are prioritising overall value for money when selecting a pension fund to deliver the best retirement outcomes for their employees.”

Director of long-term savings policy at the ABI, Yvonne Braun, argued that the initiative “will help usher in the saver-focused culture across the whole pension system that we’ve long called for”. 

A new value for money regime proposed for contract-based schemes by the Financial Conduct Authority originally included a duty on employers to review their DC scheme, but this is not included in the mirroring provisions for trusts in the pension schemes bill. 

As introduced, the bill proposes to require DC schemes to publicly disclose and compare against other schemes – or potentially against a benchmark – their investment performance, cost and charges, and service quality. Schemes would also have to disclose the percentage asset allocations for their default arrangements, which could be the eight asset categories suggested by the FCA – cash, bonds, listed equities, private equity, property, infrastructure, private debt and ‘other’.

Under the bill’s proposals, the trustees must then give their scheme a rating of ‘fully delivering’, ‘not delivering’ or one of the intermediate grades yet to be specified. An intermediate or ‘not delivering’ rating would require an action plan to be submitted to the Pensions Regulator and bar the scheme from taking on new employers, with schemes that are not delivering potentially having to merge.

TPR will be given power to issue penalties of up to £10,000 for individuals and up to £100,000 for companies for non-compliance. It already has powers to fine schemes under existing VfM requirements; among others, the regulator fined the Coyne Butterworth Hardwicke Ltd Discretionary Pension Scheme £10,000 for VfM breaches last year.

In 2023, TPR revealed that fewer than a quarter of DC schemes, mostly small and micro, met existing value for money requirements, though most members were in larger schemes that did meet them. 

Currently, all DC schemes must assess value for members, focusing on costs and charges. Those with less than £100m of assets under management must carry out a more prescriptive assessment, with TPR expecting schemes that are not offering value to take immediate action or consider winding up.