Employer Pension Pledge

Frequently asked questions

Introduction

The Employer Pension Pledge is a voluntary commitment from employers of UK employees to consider overall value for money, rather than focus narrowly on cost reduction, when reviewing or selecting a pension provider, facilitate training on the potential benefits of private markets, and advocate for transparency from providers with regards to private market allocations in default funds.

“This direction is reinforced by plans to switch the focus of the pensions system towards value and away from a narrow focus only on cost. This is a journey for everyone involved in pensions – including the employers choosing pension schemes on behalf of their employees. Ultimately, it is returns that matter for pension savers and everything we do needs to reflect that.”

Torsten Bell, Minister for Pensions

Background

Since the introduction of auto enrolment, participation in workplace defined contribution (DC) pensions schemes have increased in all sectors and regions of the UK from £82 billion of total annual contributions in 2012 to £115 billion in 2021. However, according to a 2022 industry survey (PDF), only 14% of defined contribution (DC) pension scheme members believe they are on track for a retirement income that maintains their current standard of living in retirement. So, it was recognised that members could benefit from higher potential returns through investments in private markets as part of a diversified portfolio.

In 2023, 11 UK DC pension providers signed up to the Mansion House Compact (“the Compact”), committing to allocating at least 5% of DC default assets to unlisted equities by 2030 with the ambition to improve retirement outcomes for long-term UK savers.

In 2025, the City of London Corporation (“CoLC”) partnered with the Association of British Insurers (“ABI”), and Pensions UK to create the Mansion House Accord (“the Accord”). The Accord builds on the ambitions of the Compact by committing signatories to allocate 10% of DC default funds to private markets by 2030, with half of this allocation invested in UK-based private assets. The Accord was announced in May 2025 and was signed by 17 DC providers, covering over 90% of UK DC assets.

Whilst securing the commitment of providers to provide members’ access to private markets is a positive step in improving potential retirement outcomes, there are still some barriers and challenges. Support from other stakeholders in the UK pensions value chain is required, including from employers who are responsible for providing a pension arrangement for employees. A key barrier to providing better retirement outcomes is a focus from employers on cost minimisation, without proper regard to net of fee performance, when selecting a pension provider for their employees. A focus on cost alone runs the risk of members missing out on higher returning assets where the additional return compensates for a higher fee. The Employer Pension Pledge (“the Pledge”) has been developed address this issue: it comprises a set of principles which i) promote Value for Money (VFM) principles including considering retirement outcomes net of fees, ii) help facilitate informed decision making regarding private market allocations by providing access to training to decision-makers (where necessary), and iii) advocates for transparency from providers on allocations to private markets.

We are in a period of active pension reform in the UK, and with the Government focusing on the quality of default funds and the role of employers in delivering better value, public expectations are shifting. Signing the Pledge aligns employers with what both HM Treasury and the Department for Work and Pensions (“DWP”) are trying to achieve: stronger retirement outcomes, more attention to value for money, and more transparency over where retirement savings are invested. The Pledge has also been designed to align with other related initiatives, such as the new Value for Money (VFM) framework, which will include enhanced disclosure requirements (including net investment performance figures) and standardised metrics for schemes to measure themselves against.

Whilst the Pledge is targeted towards employers as key decision makers in provider-selection processes, it’s also important for other key stakeholders such as Trustees, advisors, and proxy agents to play their role in supporting the ambition to improve retirement outcomes by ensuring their behaviours are consistent with the principles of the Pledge.

This document addresses FAQs related to the Employer Pension Pledge only. Separate FAQ documents for the Mansion House Compact and Mansion House Accord are available.

Executive summary

Frequently Asked Questions

1. What is the Employer Pension Pledge?
The Pledge is a public statement of intent to support stronger retirement outcomes for employees through focusing on value for money in default pension funds. There is no legal or contractual commitment. Signatories to the Pledge are simply saying: we back the principle that pensions should do better by working people, and we are prepared to be seen saying so.

Whilst the Pledge is designed to support the success of the Mansion House Accord, firms who sign up to the Pledge are not committing to investing in, or forming a particular view on, private markets; they are simply committing to considering value for money principles, rather than focussing solely on cost, when selecting or reviewing their pension provider.

2. What is the Value for Money (VFM) Framework?
The VFM framework was established to help ensure DC schemes provide good value to its members and reduce the likelihood that members’ pots are eaten away by fees and poor performance; Trustees and Governance Committees are required to annually assess the quality and performance of a wide range of services (including investment performance, administration, governance, and member communications) provided to members against costs incurred and outline plans to address any poor performing areas.

Although the VFM framework is currently under review, the principles outlined in the Pledge are expected to be consistent with the new requirements; the Pledge is an opportunity for employers to publicly show their support for the framework ahead of the requirements coming into force.

3. Will the Pledge increase costs for employers?
No, the principles outlined in the Pledge will not increase costs for employers.

4. Will the Pledge increase costs for members?
No, the Pledge will not directly increase costs for members. Following the principles of the Pledge could (but is not required to) mean that an employer chooses a provider whose default investment fund has an allocation to assets with a higher annual management charge, which would increase the cost deducted from member pension assets, although it’s important to consider higher expected investment return net of fees when considering the overall impact to member pots. For example, a recent study from the BVCA showed that as of December 2023, UK private capital funds delivered a 10-year horizon return of 15% compared to 5.3% for the FTSE All Share and 7.5% for the MSCI Europe index over the same period net of fees.

5. Why might it be in members’ best interest to pay higher fees for an allocation to certain assets, for example private markets?
Whilst some asset classes can cost more than ‘traditional’ pension assets (e.g. public equities, bonds), expected risk adjusted investment returns over the long-term have the potential to be more attractive, even after fees are deducted.

6. Does signing up to the Pledge mean employers should review and/or change their pension provider more frequently?
No. Employers have a responsibility to oversee the provision of a pension to their employees, and make sure their selected provider delivers in a way which is in the best interest of their employees; however, the Pledge does not mean that employers need to increase the frequency of provider reviews.

7. How does the Pledge relate to other pension-related government initiatives?
We are entering a period of visible and politically active pension reform in the UK – the Government is focusing on the quality of default funds and the role of employers in delivering better value, as evidenced by the recently announced Pension Schemes Bill 2025, which included several significant changes that will shape the landscape over the coming years. The Pledge aligns with the direction of travel of these changes.

Signing the Pledge puts employers in alignment with what both His Majesty’s Treasury and the Department for Work and Pensions (DWP) are trying to achieve: stronger outcomes in workplace pensions, more attention to value for money, and more transparency over where people’s retirement savings are being invested. Signing the Pledge also signals to regulators and policymakers that employer’s businesses are engaged, responsible, and forward-looking by aligning with the new VFM framework requirements ahead of implementation (expected to start in 2026).

8. Is there a risk that high fees will reduce the value of employees’ pension pots over the long-term?
Cost of pension investments is one of many factors which contributes to the value of a DC pension pot at retirement and should be considered in the context of investment risk and return. When considering how to achieve the best potential retirement outcomes, all factors, and the impact they have on pension pot values, should be considered in tandem. For example, choosing an investment purely based on its low fees, without considering the potential future value of the asset, could ultimately lead to a worse outcome than a better performing, more expensive asset.

Ultimately, the investment allocation of the default fund is a decision for Trustees and Independent Governance Committees (IGCs), and the Pledge does not override this.

9. What potential impact could an allocation to private markets have for an average employee?
Estimates suggest that a 22-year-old new entrant to a default DC scheme with a 5% allocation to unlisted equities, comprising venture capital and growth equity, could achieve a 7-12% increase in total retirement savings. However, it is also acknowledged (PDF) that the comparison of investment performance between unlisted equities and their listed counterparts is impacted by various factors and may include a survivorship bias.

10. What is the eligibility criteria for employers to sign up to the Pledge?
There is no minimum employer size, and the Pledge is available to all employers that have a private sector Defined Contribution (“DC”) scheme for their employees.

11. How can employers sign the Pledge?
The Pledge is available to sign online here.

12. What if members do not want to invest in private markets?
Members of any DC pension scheme can choose from a selection of funds their Trustees of IGCs have made available and need not be in the default fund if they do not wish. Whilst value for money principles should be considered in all investment fund options provided to members, the Pledge only applies when considering the default fund.

13. Will signing the Pledge create more work for our pensions or HR teams?
There is minimal work required from HR teams. There is no reporting requirement, no follow-up form-filling, and no obligation to alter governance structures. The expectation is that signatories stay informed and interested in how default arrangements can evolve, but the Pledge itself does not introduce new workstreams.

14. What are the reputational benefits to the business of signing the Pledge?
Signing the Pledge shows that you are taking employee financial wellbeing seriously and are plugged into how the pensions system is evolving. For many, pensions are an invisible part of the reward offer, but the direction of travel is clear: investors, policymakers and employees are paying more attention. This gives you a visible, credible position with no additional risk or spend. It aligns with ESG and reinforces internal messaging on long-term care for your workforce.

15. What if we are currently reviewing or changing our pension provider?
That’s fine. Many signatories are in the middle of scheme reviews, provider transitions, or governance changes. Signing the Pledge does not get in the way – in fact, it complements these activities – it’s a values-led signal, not an operational instruction.

16. Could we be criticised for signing but not doing anything further?
This is not a campaign built on tick-box activity or staged delivery. The Pledge is about supporting the direction of reform and signalling an active interest in value for savers. If your business wants to go further in future, perhaps by engaging Trustees or IGCs, exploring new defaults, or joining policy conversations, then all of that is welcome, but it is not a condition of signing the Pledge.

17. What should our internal message to colleagues be?
The Pledge can sit comfortably within your broader narrative on employee wellbeing, responsible business, or reward strategy. It shows you are backing better pensions for staff without spending more, and without changing anything overnight.

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