Concerns over the potential for a legal underpin for the Mansion House Accord have continued, with Pensions Minister, Torsten Bell, refusing to be drawn into speculation over whether mandation could be considered if the signatories do not meet their commitments.

Asked about the recent reports that the government is considering introducing a legal change that could require UK pension schemes to invest more in the UK economy in future, Bell emphasised that the accord as it stands is a voluntary agreement.

"We've been clear that change is going to come," he said, although he emphasised that this agreement has come from the industry, with the signatories themselves setting the benchmarks for what they think progress looks like.

He also noted that many providers have suggested that they are already keen to go further than the ambitions outlined in the accord, arguing that "I think it's now about getting on and doing it".

Barnett Waddingham partner and head of DC, Sonia Kataora, however, argued that whilst for now, the Mansion House Accord is voluntary, the government seems "unabashed" to further enforcing investment if its ambitious targets aren't met.

And it was not always a guarantee that the accord would be voluntary, as previous industry reports suggested that the government may have been considering introducing some form of mandating.

Evidence of these discussions can be seen in the industry’s reaction to the launch of the accord, as SEI DC managing director and Society of Pension Professionals (SPP) DC committee member, Steve Charlton, said that the firm had "become more comfortable" with the proposed changes to the Mansion House reforms due to ongoing collaboration and open dialogue between the industry and the UK government.

But threat of mandation remains, as Herbert Smith Freehills’ pensions practice partner, Michael Aherne, warns that “spectre of mandation” is still lurking in the background.

“The government could, via legislation, trump the fiduciary duty but mandating UK investment, in circumstances where providers had concluded that it was not in the best interests of savers, would be controversial,” he said.

Pressed further as to whether there was going to be any sort of caveat or underpin in the Pension Schemes Bill, Bell said: "We'll publish the bill, and then you'll be able to see what is in the bill."

Whether the accord will prove achievable is yet to be seen, as the agreement itself clarified that the commitments are contingent on a number of “critical” enablers, including a broader shift from cost to value, as well as the successful delivery of the proposed Value for Money (VFM) framework.

The accord also highlighted the need for a “pragmatic” well-sequenced approach to the scale tests proposed by the government in a way that ensures competition and innovation in the market and that does not prevent signatories from investing in private markets at scale, in the near term.

In addition to this, the accord stressed the need for a strong pipeline of UK investment opportunities, which the government has agreed to facilitate.

Charlton welcomed the government’s commitment in this area, suggesting that this will mitigate previous concerns about the risks of high-priced, poor-quality investments in an environment where the originally proposed investable opportunities are scarce.

This is also an area that the Pensions Minister has confidence in, as he said: "I'm really confident about that because there is a reason why Canadian and Australian pension funds are opening offices in London. It's not because there's no pipeline of private assets to invest in."

But not all are as positive about the current pipeline of assets, as Mercer president and CEO, Benoit Hudon, says: “What we need from government is the creation of a solid pipeline of opportunities and it's for investors to decide where they invested it.

“We don't think the pipeline is sufficient today, but it’s [the government’s] job to create that set of opportunities.”

And a range of opportunities is important, according to Hudon, as he acknowledges that providers will have different investment beliefs and biases to consider.

Isio director, Iain McLellan, also said that it will be interesting to see more detail on the definition in the accord for what assets meet the UK private market allocation and how the government can help ensure that a pipeline of these assets can be expanded.

“Without this expansion, any increase in investment will just raise prices, resulting in the opposite of the wider aims to improve Value for Members,” he said.

Independent Governance Group (IGG) head of policy and external affairs, Lou Davey, echoed this, arguing that, in particular, “further clarity around the types of initiatives that government sees as a priority for investment is required”.

Some further details have already been seen now that the accord has been revealed, including the definition for private markets.

According to the definition in the accord, private market includes the following unlisted asset classes: equities, property, infrastructure, and debt/credit. Whilst UK private markets are classed as those where the underlying assets are based in the UK.

But this is not the only area where further work may be needed, as Pinsent Masons partner and pensions expert, Tom Barton, said that government also needs to deliver a sensible framework on VfM, scale and consolidation taking account of weaknesses and issues flushed out through the consultation, emphasising that "this is a delicate balance".

This was echoed by Hargreaves Lansdown head of retirement analysis, Helen Morrissey, who said that the interplay between cost and value will be a key challenge for the industry to tackle.

“There have long been concerns that a race to the bottom in terms of cost can reduce the long-term value that members receive,” she added.

“Private assets can push up these costs, but it will be important for schemes to demonstrate their role in improving member outcomes over the long-term as part of the wider Value for Money framework."

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