The UK government is set to introduce a “reserve power” enabling ministers to compel pension funds to allocate their investments into British assets, a decision likely to raise concerns within the retirement sector.

On Thursday, further details will emerge regarding reforms linked to the Pension Schemes Bill, part of the government’s initiative to utilize the financial strength of British retirement funds to enhance the national economy.

This announcement follows a recent consensus among 17 major defined contribution workplace pension providers, who committed with the Treasury to increase investments in UK private assets—such as infrastructure projects and start-ups—by an estimated £25 billion by the year 2030.

This agreement, known as the Mansion House Accord, was a voluntary industry endeavor. However, the Treasury indicated that adherence to this commitment would be monitored and that mandatory measures could be included in upcoming government reviews of pension investments.

According to the Treasury, “The Mansion House Accord illustrates the willingness of defined contribution schemes to voluntarily invest more in infrastructure and businesses.

“To ensure that individual schemes maintain competitiveness without risking their business models by investing in private markets—often characterized by substantial initial costs but offering potentially higher returns—the government will enact a reserve power through the Pension Schemes Bill to establish binding asset allocation targets.”

While government officials contend that this power will not need to be activated to mandate specific pension fund investments, the mere existence of this power could spark considerable debate within the pension industry.

The introduction of such a power raises potential conflicts with the fiduciary responsibilities of pension trustees, whose duty is to prioritize the financial interests of plan members. Some signatories of the accord, including Dame Amanda Blanc, the chief executive of Aviva, have cautioned against government mandates, describing them as excessive.

This reserve power is among several other reforms proposed by the Treasury, which also includes plans to consolidate smaller defined contribution schemes and pool assets of the 86 Local Government Pension Scheme authorities into larger funds, each worth at least £25 billion by 2030.

The rationale for this consolidation is to realize economies of scale, targeting a reduction of £1 billion in costs while facilitating further investments in domestic infrastructure and enterprises. The Treasury projects this will also positively impact savers, potentially increasing pension pots for average workers who began saving at age 22 by approximately £6,000.

Additionally, the forthcoming bill aims to advance proposals allowing employers to access surpluses from traditional defined benefit pension schemes, enabling funds to be reinvested within the UK.

Chancellor Rachel Reeves stated, “We are ensuring pensions are beneficial for Britain. These reforms will yield improved returns for workers and inject billions into clean energy and high-growth enterprises.”

Miles Celic, the chief executive of TheCityUK, remarked, “It is essential to empower individuals to prepare adequately for retirement. Facilitating pension fund investments into productive UK assets can significantly contribute to economic growth. We will closely review these proposals and are keen to collaborate with the government during the implementation phase.”