Business Secretary Peter Kyle has ignited controversy by suggesting that UK pension fund managers should be compelled to invest more in the United Kingdom. Kyle stated that asset managers "should feel a patriotic duty in making Britain a success" and, if necessary, he would use legal powers to mandate such investments.
These remarks revive the concept of 'mandation,' which has historically faced strong opposition from the pensions industry. Critics argue that investment decisions should prioritize maximizing returns for pension beneficiaries rather than serving political objectives. "I don’t think mandation is ideal in any circumstances. But I’ll use it if I have to, because I’m in a rush," Kyle told The Guardian.
Trillions of pounds are held within UK pension funds, but the proportion allocated to domestic investments has reportedly declined significantly. Kyle expressed frustration with the City of London's requests for investment reforms that have not gained traction. "They are representing British savers," he said, emphasizing their patriotic obligation.
However, former pensions minister Steve Webb called Kyle's comments "outrageous and ignorant," asserting that asset managers are fiduciaries and should not alter investments based on ministerial directives. "Asset managers are managing other people’s money. They should not switch investments because they have been ‘told off’ by a minister," Webb stated.
Legislation passed earlier this year granted ministers the authority to mandate investments in UK assets, although this power cannot be exercised before 2028. Simeon Willis, chief investment officer at pensions consultancy XPS, cautioned against decisions that could negatively impact members' financial outcomes, even if driven by a desire to boost the UK economy. "We need to avoid a situation where pension schemes make decisions that lead to worse financial outcomes for their members, driven by a well-meaning but nonetheless unquantifiable perceived boost to UK economic growth," Willis said.
Tom Selby, director of public policy at AJ Bell, echoed these concerns, stating that individuals save in pensions for their financial well-being, not to support UK businesses. He suggested that politicians should focus on creating an attractive investment environment in the UK rather than mandating asset allocations, which he described as "the lazy option."
Former Bank of England chief economist Andy Haldane has previously criticized the UK's pension system for lacking a 'home bias,' advocating instead for the use of tax reliefs to encourage domestic investment.