The Mansion House Compact is a voluntary industry-led initiative to secure better financial outcomes for DC savers by increasing pension investment into unlisted equity. Rachel Reeves, the Chancellor of the Exchequer, is expected to announce a new version of the Compact in her July 2025 Mansion House speech.
The original Compact was announced in 2023 by the then Chancellor, Jeremy Hunt, and was a voluntary, non-binding agreement between nine of the UK’s largest DC pension providers to allocate five per cent of assets in their default funds to unlisted equities by 2030. Signatories included Aviva, Scottish Widows, Legal & General, Aegon, Phoenix, Nest, Smart Pension, M&G and Mercer.
However, while many of the initial signatories are understood to have taken key steps progressing their Mansion House Compact commitments, only limited assets have so far been invested. The Association of British Industries published an update as at February 2024, which detailed that Compact signatories held nearly £800m of unlisted equities in their DC default funds, equivalent to just 0.36 per cent of their DC default fund total of £219bn.
Rachel Reeves’ proposed new Compact will see pension providers commit to investing 10 per cent of their default funds in unlisted assets by 2030, with half of that devoted to UK assets. It was reported that a first draft of the new Compact was circulated last week following negotiations between Treasury ministers, the pensions industry and the City of London Corporation. The new commitment would see approximately £100bn of UK pension savings invested in unlisted assets by the end of the decade, with around £50bn invested in the UK. Investment in unlisted equities would mean that funds are primarily committed to illiquid investments such as infrastructure projects and other large developments. However, it seems that some of the original signatories have raised concerns about the suggested increase and that they may not agree to the new Compact.
The first part of the Government’s Pension Investment Review, which is expected to be published in the coming weeks, is expected to stop short of mandating UK investment for pension providers. However, the Chancellor’s notably ambitious increase in moving from five per cent to 10 per cent suggested investment of DC default funds in unlisted equities is a marked change. While the move does not affect trust-based DC schemes, it may be an indicator of the Government’s future direction of travel.
