Pensions UK and the Association of British Insurers are calling on the government to withdraw a temporary power from the pension schemes bill which would allow it to direct how DC schemes should invest if it thinks that schemes do not allocate enough to productive finance or the UK, for example.

With the pension schemes bill entering the report stage in the House of Lords later this month, Pensions UK and the ABI are urging the government to rethink the controversial reserve power to mandate defined contribution investments, due to be in place until 2035. The report stage will be one of the last opportunities for amendments to be introduced and put to a vote.

Pensions UK chief executive, Julian Mund, said: “Now is the time to drop the reserve mandation power from the bill.”

The association strongly supports most of the provisions in the bill, but the power risks distorting the market, compromising saver outcomes and eroding trust in the system, he argued.

“The current drafting of the provision goes far beyond the scope of the Mansion House Accord and could be used to direct investment in very broad terms, either by this government or a future one. Should the power remain in the bill, it is critical that it is aligned to the standards set by the Accord, and that it goes no further,” Mund said.

The ABI’s director general Hannah Gurga has written to pensions minister Torsten Bell saying the power in the bill goes far beyond the government’s stated policy intent of having a reserve power to address any collective action problem that would impact the delivery of the Mansion House Accord.

Under the 2025 Mansion House Accord, 17 DC schemes pledged to invest 10% of default funds in private markets, half of this in the UK. The Accord came about in part to avert mandation, after the 2023 Mansion House Compact had failed to achieve its productive assets investment target.

The mandation power “has very limited constraints on how and under what circumstances the requirements could be introduced, leaving the power open to be used in very different and potentially damaging ways in the future”, Gurga said, asking the pensions minister, “even at this late stage”, to withdraw it.  

“To be clear, our members, unanimously, are concerned about the impact of mandation on outcomes for the savers they serve,” she added. 

Both organisations are proposing guardrails in case the power remains in the bill. Pensions UK wants to see:   

The ABI is similarly asking for the first point of capping mandated investments, and asks for: 

Pensions UK previously warned of the political risk of keeping the mandation power until 2035 and asked for it to end in 2032 instead. The next general election is due in 2029. In the latest YouGov polls about voting intention, Reform UK leads, followed by the Greens, with Labour and Conservative a distant third. 

The mandation power has been widely criticised by the pensions industry and politicians.

Last summer, the Society of Pension Professionals highlighted a risk of market distortion and misallocation of capital if DC schemes are obliged to buy very specific assets, potentially having to sell other assets at the same time. In July, Conservative MP Kit Malthouse labelled the mandation clause in the bill “chillingly dirigiste”, while the Lords Delegated Powers and Regulatory Reform Committee called it “in large part a licence for ministers to make subordinate legislation”.

The debate about mandation and fiduciary duty is not confined to DC. For the Local Government Pension Scheme, Bell removed a power to direct investments but kept a clause that would allow the government to intervene if it disagrees with the “manner” in which an LGPS pool invests. This means if ministers decide that the investment specialists in a pool are “utilising more investment vehicles than are required” or “using segregated mandates where collective investment vehicles would achieve greater benefits”, the government could order them to change their approach, according to a letter by Baroness Sherlock, a minister in the Department for Work and Pensions.