An update published by the ABI – whose role it is to track industry progress – shows firms having laid strong foundations needed to implement the ambition of DC default funds allocating 5% to unlisted equity by 2030.
Signatories of the Compact currently hold nearly £800m (£793m) of unlisted equity assets in their DC default funds.2 This is the equivalent of 0.36% of the total value of their DC default funds (£219bn). The ambition of the Compact is to allocate at least 5% by 2030.3
Firms report having taken key enabling steps to ready themselves for progress on the industry-led initiative. These include hiring, training or new partnerships. For example, 10 of 11 companies have taken steps to establish or expand their expertise in unlisted equity investment – such as through training or recruitment.
Furthermore, eight of the 11 have started developing specific solutions to enable increased unlisted equity investment, such as Long-Term Asset Funds (LTAFs).
For example, L&G launched a fund this month for DC savers, to give them the opportunity to access private market exposure. It has already integrated this fund into its default options across Mastertrust and GPP. Similarly, Aegon announced in June plans to introduce private market investment into its largest workplace default fund from Q3 this year.
Testing client appetite for such investment has also returned positive signs, with the majority (seven of 11) reporting support for the ambitions among clients.
However, signatories also highlighted barriers to the implementation of the Compact, particularly the focus of benefit consultants and trustees on price rather than value when it comes to scheme selection. To address this, signatories and the ABI are suggesting a shift in culture towards value as a key policy intervention that would help firms overcome this barrier.
Yvonne Braun, ABI’s Director of Policy, Long-term Savings, said: “The progress at this relatively early stage is encouraging. It’s clear that signatories have laid strong foundations to start implementing the ambition in the Mansion House Compact to allocate 5% of their default funds to unlisted equity.
“Yet it is evident that the single biggest challenge to pension schemes and providers realising this ambition is the overfocus on cost by those selecting schemes. This is acting as a barrier to developing stronger long-term value propositions that deliver better consumer outcomes. That is why it is absolutely essential to get the value for money framework right.”
The update also provided more context on DC pension fund investments in infrastructure assets, at £5.7bn in default funds or £7.0bn if broader UK pension and savings vehicles are included.
The full report, produced in partnership with the City of London Corporation is available here. It also gives greater detail on actions taken and barriers identified/navigated by signatories and their individual suggestions for possible policy interventions to improve the system.
The Mansion House Compact was announced by the then City of London Lord Mayor, Sir Nicholas Lyons, in July 2023. It is also supported through the Mansion House Forum by the Pensions and Lifetime Savings Association (PLSA) and British Private Equity & Venture Capital Association (BVCA).
1. The 11 Compact signatories are: Aegon, Aon, Aviva, Cushon, Legal & General, M&G, Mercer, NEST, Phoenix, Scottish Widows and Smart Pension.
2. The figures relate to a snapshot correct as of end February 2024.
3. The 5% allocation will be dependent on the total amount in DC default funds, but this is expected to be much greater than the existing £219bn by 2030.
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