Industry experts have urged Chancellor, Rachel Reeves, not to overlook defined benefit (DB) pension schemes in her upcoming Mansion House Speech, as speculation over the potential pension reforms included in the speech has continued to grow.

Previous reports suggested that Reeves could be considering plans to implement a ‘Canadian-style’ pension model in the UK to encourage Local Government Pension Scheme (LGPS) to consolidate further and unlock further investment potential.

However, Gresham House CEO, Tony Dalwood, warned that a focus on reducing costs does not necessarily lead to superior investment returns.

"LGPS pooling is driven, in part, by a focus on cost savings, and it is crucial that investment outcomes are primary in the discussions," he argued.

“Scale should not come at the expense of tailored impact investing solutions. Smaller, local, or specialised projects may not meet the scale requirements of a pooled investment structure."

Other announcements rumoured ahead of the speech have also prompted concern, as XPS Group partner and head of DC investment, Mark Searle, noted that there has been speculation that this year’s Mansion House speech will continue in the same direction as the Mansion House Compact announced in 2023, potentially mandating the wider industry to make a similar, or even larger allocation.

"We think this could be a slippery slope," he warned. "Defined contribution (DC) schemes should have one clear goal: maximising members’ retirement incomes through strong, risk-adjusted returns. Pensions exist to support members’ retirements, not to serve economic objectives.

"Mandating specific allocations risks undermining members’ trust in the industry, especially at a time when low contributions already challenge the system’s adequacy."

Instead, Searle suggested that a more suitable move for policymakers would be to help shift the industry’s focus from minimising costs to maximising long term performance.

"We believe that the best catalyst for this change would be through the introduction of league tables constructed using a concise set of metrics calculated by a trusted source," he continued.

"This would incentivise UK schemes to allocate to investments with the most attractive risk-adjusted returns. Such a shift would likely indirectly support the government’s economic growth objectives because there are lots of UK assets that would be attractive for DC portfolios."

There have also been calls for the government to widen its scope, as XPS Group senior consultant, Tom Froggett, said that whilst the Mansion House speech is likely to focus on DC and public sector DB schemes, the Chancellor should not "overlook" private sector DB schemes.

“These schemes are well-funded but, without any incentives to run on, employers and trustees are viewing insurance buyouts as the default path once schemes close," he stated.

"We’re therefore calling on the government to introduce changes to help private sector DB schemes to build and use surpluses where appropriate, which could unlock up to £100bn in value over the next decade.

"With employers facing rising costs, especially after the recent increase to employer NI contributions, this flexibility will be essential to improve outcomes for both employers and members.”

This was echoed by Brightwell CEO, Morten Nilsson, who argued that making it easier for pension scheme surplus to be returned to sponsors, with the right checks and balances, could provide a "powerful incentive" for both sponsors and trustees to run the pension scheme on for longer.

But Nilsson pointed out that whilst the Options for DB schemes consultation closed in April, since then the focus has been elsewhere, with previous research from from Brightwell revealing that many DB schemes are adopting a 'wait and see' approach to their endgame as a result.

"I hope the Chancellor uses the Mansion House speech to provide some much needed clarity so that DB scheme trustees are able to fully assess their endgame options," Nilsson said.

“A greater proportion of DB schemes running on would have a number of benefits for members, sponsors and UK plc. It would ensure continued support for the gilt market and allow sponsors to invest in their own businesses.

“Getting the mechanics of this right is imperative to ensure the proper protections are put in place. But, done carefully, it could make running on a pension scheme a whole lot more attractive.”

Van Lanschot Kempen head of client solutions UK, Nikesh Patel, echoed this, agreeing that enabling schemes, which commit to investing a proportion of their surplus in UK assets, to access their surplus annually, and giving them a tax break to do so, would encourage schemes to invest in UK assets they might otherwise not have chosen.

However, Patel acknowledged that, as part of their fiduciary duty, well-funded schemes will want the Chancellor to be clear on how they can allocate capital to these UK assets in a way which does not create additional risk for members.

He stated: "In our view, notionally separating scheme assets into a portion which covers existing members’ pensions – and which can be invested as conservatively as current pensions wisdom dictates – and a second, “surplus” portion – which can be deployed broadly, including into the UK – provides a viable middle ground which helps catalyse UK growth without compromising the security of members’ retirement savings.

“Mansion House is a significant opportunity for policy change which delivers greater benefits for the economy, companies and pension scheme members – but only if the government can enable and encourage DB scheme trustees and sponsors to run on and invest productively for UK growth.”

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