Mansion House Accord, Solvency UK, best ways to secure long-term growth

The Mansion House Accord, building on Solvency UK, and the opportunity from increasing pensions contributions are some of the key ways the UK could see more growth.

A new report, ‘Blueprint for Growth’, produced by Oxford Economics and commissioned by L&G, shows that six policy changes have the potential to deliver an “up to £220 billion boost in UK investment over the next decade”, which would add 0.7% to UK GDP by 2035.

The report focuses on policy levers that could deepen the pool of pensions and institutional capital, expanding and unlocking long-term savings for investment in productive assets in the UK, and aiding their deployment.

The study comes at a time when the UK struggles to provide growth to pay for much-needed infrastructure upgrades and public services.

The investment opportunities are largely in areas where institutional investors have already placed capital or have pushed heavily for more work to be done.

The study models the impact that full implementation of four existing government reforms and two further opportunities could have on the UK economy:

1. The Mansion House Accord – a voluntary industry commitment from 17 defined contribution pension providers to allocate 5% of their main default funds to UK private markets by 2030.
2. The Local Government Pension Scheme (LGPS) – new requirements for administering authorities to develop (and report on) their approach to local investment as set out in the Government’s response to the Fit for the Future consultation.
3. Surplus Extraction – the introduction of new powers allowing trustees of defined benefit schemes to modify rules so that they can pay surpluses back to sponsoring companies.
4. Planning reforms – policies in the updated National Planning Policy Framework (NPPF) that support investment in the housing sector by improving efficiency and predictability within the system.
5. The opportunity from increasing pensions contributions – modelling a scenario where auto-enrolment contributions are shifted to a minimum of 12% by increasing both employee and employer auto-enrolment contributions to 6% over six years and removing the current age and earnings eligibility thresholds. This modelling could help inform The Pensions Commission’s work on pensions adequacy.
6. Building on Solvency UK – the investment accelerator will allow insurers to invest ahead of regulatory approval. A further opportunity to unlock investment could be delivered through the continued refinement of Solvency UK, enabling insurers to invest more easily in long-term infrastructure. This adjustment relates to the regulatory treatment of whole projects to limit the need for insurers to securitise or pool assets into bonds or other debt instruments. 

“Delivering long-term growth must be at the heart of economic strategy and the UK has the fundamentals to deliver it,” said António Simões, Group Chief Executive, Legal & General.

“Currently, just 1.4% of assets covered by the pledge are invested in UK-based private markets."

Simões said pensions capital is central to that effort. “With more than £3 trillion in long-term savings, even a modest shift towards productive assets can finance the homes, infrastructure and innovation the country needs,” he said.

At present, the Mansion House Accords covers £252 billion in assets by its pledge, a figure the Government projects will rise to £735 billion by the end of the decade, said the report.

“Currently, just 1.4% of assets covered by the pledge are invested in UK-based private markets; increasing this to 5% is estimated to result in an additional £26 billion flowing into UK private markets by 2030,” it said.

The pension and insurance sector already plays a key role in driving investment in the UK economy, with the total value of UK pension assets estimated at £3.2 trillion in 2024.

What else did the report say?

The report focused on the impact of targeted reforms to the pensions and insurance sector.

Oxford Economics modelling shows these measures could permanently lift GDP by 0.7% - a scale of impact that compares favourably with other major policies, such as full expensing or childcare reforms, each estimated by the UK’s Office of Budget Responsibility to boost GDP by around 0.2%.

“Investment in productive assets not only strengthens the economy but delivers on broader societal benefits."

What is the wider context?

The report underlined the role that long-term institutional investors can play in supporting the UK government’s Plan for Change by directing capital into assets that drive sustainable growth.

“Investment in productive assets such as new housing, clean energy generation, and digital infrastructure not only strengthens the economy but delivers on broader societal benefits,” it said.

Some of these plans have been recently announced in the budget, and there has long been a desire for a more holistic plan to include private capital in the UK plans. The need for investment was also laid out by the report.

“Rising investment creates its own momentum; growth strengthens the capacity to save; saving fuels further investment; and that virtuous cycle compounds into lasting, broad-based prosperity,” Simões said.