Pensions UK has urged the government to remove the proposed reserve mandation power from the Pension Schemes Bill, warning that it could allow ministers to direct how pension schemes invest savers’ retirement funds.

The industry body argued that, as currently drafted, the reserve power extended significantly beyond the government’s stated intention of supporting the Mansion House Accord, under which 17 of the largest workplace pension providers have voluntarily committed to invest at least 10 per cent of their defined contribution (DC) default funds in private markets by 2030, with 5 per cent allocated to the UK.

Pensions UK noted that the bill was now at a crucial stage in its passage through Parliament, with the report stage representing one of the final opportunities to introduce and vote on amendments.

While the organisation welcomed the broader aims of the Pension Schemes Bill, including reforms designed to reduce system complexity and improve outcomes for savers, it warned that the mandation power could undermine market competition.

Pensions UK argued that, if the power were exercised, it could hamper the free and open market dynamics that help drive better outcomes for members, stressing that decisions on how pension savings were invested should not be determined by political direction.

The organisation therefore called for the government to withdraw the reserve mandation power from the bill.

However, if the provision remained, Pensions UK said a number of safeguards should be introduced to limit potential risks to scheme members.

These included a cap on the proportion of investments that could be mandated, aligned with the 10 per cent and 5 per cent voluntary targets set out in the Mansion House Accord.

The organisation also called for stronger requirements around the report that must be produced before the power could be exercised, as well as a reduction in the duration of the sunset clause from 2035 to 2032 in order to reduce political risk for schemes.

In addition, Pensions UK stressed the importance of the government continuing to develop a strong pipeline of UK investment opportunities and a regulatory environment that supported the goals of the Mansion House Accord.

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

“Pensions UK strongly supports most of the provisions in the bill and wishes to see it passed, but the mandation power risks distorting the market, compromising saver outcomes and eroding trust in the system.

“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."

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