Lloyds walks away from Reeves £50bn pensions deal

Rachel Reeves has come under pressure after Lloyds Bank's pension arm, Scottish Widows, refused to back a plan to see £50 billion of workers' pensions diverted to investment in new businesses and infrastructure.

The government and many in the investment industry insist the scheme will boost the pension pots of millions of Britons and help support economic growth.

However, there is a backlash from some leading players who insist they should be free of government interference when it comes to investment decisions.

The Chancellor has hailed an updated industry initiative, dubbed the Mansion House Accord, which includes a voluntary pledge by investment funds to change their investment rules as a "bold step".

She argues it is an important step towards delivering growth, boosting pension pots and securing the financial futures of working people.

Under the deal, 17 of the UK's biggest workplace pension providers have pledged to invest 10% of their default funds in private markets - including start-ups and infrastructure - with half of that earmarked for the UK. The Treasury claims the UK portion alone could unlock £25 billion for the domestic economy.

But that vision was dealt a blow as Scottish Widows rejected the new pact, with its chief executive warning against tying pensions too closely to political goals.

In a statement that will ring alarm bells across the City, Chirantan Barua said the organisation plans to stick to its own investment priorities, adding: "We will continue this investment approach to support our communities where it generates strong returns for pensioners."

He made clear that geography would not dictate investment decisions, even if it meant breaking ranks with the Chancellor.

Scottish Widows, which manages more than £100 billion in workplace pension assets and has 10 million savers, was a major backer of the original 2023 Mansion House Compact. That earlier agreement, brokered under Jeremy Hunt, involved a smaller voluntary 5% allocation to unlisted equities by 2030, without the UK focus now being demanded.

Lloyds is not alone in its scepticism. Benoit Hudon, UK chief executive at Mercer - which did sign the pact - warned that government interference could hurt savers:

He said: "The ultimate result of a mandate may be lower returns for pensioners and poorer pensioners in the country - which goes completely against the fundamental objective of this proposal."

The Treasury has hinted that it could compel companies to invest in the UK if the voluntary pledges fail to deliver a change.

Such threats have sparked wider concern across the sector.

Critics argue that enforcing UK-focused investment quotas risks clashing with pension trustees' fiduciary duty - the legal obligation to act in savers' best financial interests. That duty, many warn, cannot be subordinated to political aims, however well-intentioned.

Tom Clougherty, of the Institute of Economic Affairs, put it bluntly: "I am very nervous about the government getting involved in asset-allocation decisions."

He urged ministers to make the UK more attractive through tax and regulatory reform rather than political pressure on pension funds.

Despite the resistance, Ms Reeves remained bullish. She insisted the move would drive investment in "major infrastructure, clean energy, and exciting startups".

She added: "I welcome this bold step by some of our biggest pension funds," she said, repeating the government's line that the accord would "give working people greater security in retirement."

A spokesman for Scottish Widows sought to clarify the firm's position, saying: "We remain committed to the original Mansion House Compact target of investing 5% of our default funds in unlisted equities by 2030."