Westminster has spent two years trying to move British pension savings into British private markets. The legislation is now in place, the pledges are signed and the Chancellor is taking credit for the first £10 billion. But capital follows the path of least resistance, not the path set out in a speech. For the owner or finance director of a UK mid-market business, the question isn’t whether the pension money is coming. It’s whether any of it will ever reach a company your size, and on what terms.
By Scott Townsley · Investment Director · 12 min read
The bottom line, up front
- The policy: The Mansion House Accord commits 17 of the UK’s largest workplace pension providers to put at least 10% of their main default funds into private markets by 2030, with at least half of that in the UK. The Pension Schemes Act 2026 adds scale requirements, pooling rules for local government schemes and a reserve power to direct allocations if the voluntary route stalls.
- The reality: Most British pension money reaching private credit today travels through insurers buying out defined benefit schemes, and it buys investment grade real estate, infrastructure and structured debt. Very little is aimed at a business with £5 million to £30 million of EBITDA.
- For you: The opportunity for lower mid-market borrowers is real but narrow: local government pension pools with a mandate to lend locally, new UK-focused lower mid-market funds raising from pension investors, and bank lending backed by an expanded British Business Bank guarantee. Knowing which pocket of capital fits your business matters more than waiting for the wave.
Key term: the Mansion House Accord
A voluntary pledge signed in May 2025 by 17 defined contribution pension providers, including Aviva, Legal & General, Nest, Phoenix, Royal London and Aegon. Signatories aim to put at least 10% of their main default funds into private markets by 2030, with at least 5% of the total in UK private markets. The pledge covers private equity, venture capital, infrastructure, real estate and private credit, and is explicitly “subject to fiduciary duty and the Consumer Duty”. In other words, it bends to returns, not to politics.
The biggest shift in UK capital for a generation, on paper
Anyone who has spent long enough in British corporate finance has heard this tune before. The Business Growth Fund was created by the banks in 2011 to plug the post-crisis equity gap. The Patient Capital Review followed in 2017. The Mansion House Compact arrived in 2023 with a 5% target for unlisted equities. Each time, the diagnosis was the same: Britain has one of the deepest pools of long-term savings in the world, and too little of it finds its way into British companies.
This time the scaffolding is more serious. The Accord puts numbers and dates on the ambition, covering some £252 billion of pension assets at signing, and the Treasury estimated at launch that it could direct up to £50 billion into private markets by 2030, around half of it in the UK. The Pension Schemes Act, which received Royal Assent in May, requires multi-employer defined contribution schemes to reach £25 billion in assets by 2030 or lose their place in automatic enrolment. The government’s theory is that big funds can afford the governance, the due diligence and the illiquidity that private markets demand; small ones cannot.
The same Act forces the £400 billion Local Government Pension Scheme into six large pools and pushes them towards local investment. And it contains the reserve power the industry lobbied hard against: the ability to direct defined contribution schemes into private and UK assets. That power survived Parliament in diluted form. Peers christened it “mandation-lite”: capped at 10% of default fund assets and 5% in the UK, unusable before 2028, subject to a savers’ interest test and gone by 2032.
In her Mansion House speech on 14 July, the Chancellor claimed the early results: “Last year, our largest pension funds invested an additional £10bn into private markets because of the changes that I have made.” Last week, a Standard Life and WPI Economics report sketched the long-run prize: a defined contribution market dominated by 10 to 15 schemes of more than £50 billion each, allocating 15% to 30% to private markets, and putting between £40 billion and £200 billion into UK private assets by 2035.
The pension capital in play
£252bn
Defined contribution assets in scope of the Mansion House Accord at signing, May 2025.
10%
Accord target for private markets in main default funds by 2030, against 2% to 4% held by UK master trusts today.
£400bn
Local Government Pension Scheme assets being consolidated into six pools.
£1trn+
Defined benefit liabilities expected to move to insurers over the next decade through buy-ins and buyouts.
£100bn
Private credit already held on UK insurer balance sheets, with a further £350bn expected over seven to ten years.
Source: City of London Corporation and Pensions UK (Mansion House Accord, May 2025); Standard Life and WPI Economics, “From Scale to Impact” (September 2026); Alternative Credit Investor (March, April and August 2026); PipelineRoad (August 2026).
Follow the money, not the speeches
Headlines lump “pension money” together as if it were a single pot with a single appetite. It isn’t. There are three quite different pipes, and they lead to quite different places.
The first, and by far the largest in the near term, is defined benefit money moving to insurers. Higher gilt yields have pushed many corporate schemes into surplus, and trustees are using that surplus to buy out their liabilities. More than £1 trillion is expected to make that journey. Standard Life’s chief investment officer told Alternative Credit Investor this year that UK insurers already hold around £100 billion of private credit and expect to add £350 billion over seven to ten years. But look at what they buy: real estate debt, infrastructure debt and structured credit, with an average portfolio rating of single A minus. Solvency UK and the matching adjustment reward long-dated, predictable cash flows with investment grade risk. A sponsor-backed unitranche to a regional engineering business does not qualify, and never will.
The second pipe is defined contribution money, the part the Accord is actually about. It’s growing fast, because auto-enrolment keeps adding contributions every month, but it starts from a low base: master trusts hold 2% to 4% in private markets today. Industry commentary for 2026 has been candid that this is a year for building capability and partnerships rather than writing cheques. And defined contribution money comes with a constraint that shapes everything downstream: cost. Schemes are judged on value for money and fees, which pushes them towards large managers, large funds and large tickets.
The third pipe is the local government pools. They’re smaller than the other two, but they’re the most interesting for the lower mid-market, because they’re the only pension investors with a political mandate to invest locally, and they’ve been explicit that local SME lending appeals to them. The catch is timing. The original pooling deadline of 31 March 2026 slipped, two pool proposals were rejected, and at least one industry adviser has suggested full consolidation could take another 18 months.
Three pipes of pension capital: where each one leads
| Pipe | Pace | What it buys | Relevance to a £5m to £30m EBITDA borrower |
|---|---|---|---|
| DB via insurers | Fast, now | Investment grade real estate, infrastructure and structured debt | Low, unless you have long-dated, asset-backed or contracted cash flows |
| DC master trusts | Slow build to 2030 | Diversified private markets through large managers and pooled funds | Indirect: through the funds they back, and only where those funds lend at your size |
| LGPS pools | Delayed by consolidation | Local and regional investment, including SME lending | Moderate and rising: the most natural fit for the lower mid-market |
Source: author analysis drawing on Pension Schemes Act 2026 summaries (Brodies, IPE), Alternative Credit Investor and Standard Life commentary.
The numbers are softer than the headlines
Start with what the Standard Life projection assumes. It is a forward look at how the market evolves, and it rests on three things holding: defined contribution savings consolidate into 10 to 15 megafunds of more than £50 billion each; those funds allocate 15% to 30% to private markets; and a large share of that stays in the UK. On that basis it arrives at £40 billion to £200 billion flowing into UK private assets by 2035. Now do the arithmetic for private credit. If private credit makes up 20% to 40% of that, UK private credit would receive somewhere between £8 billion and £80 billion from defined contribution schemes. That’s a very broad range, and at this stage the inflows are no clearer than that; the possibilities span a tenfold spread. Nor does the figure say how much would reach sub-investment grade companies below the upper mid-market, rather than settling in investment grade assets.
Then read the small print. The Accord is conditional on fiduciary duty, on the Consumer Duty, and on the government delivering “a pipeline of suitable UK investment opportunities”. That last phrase carries more weight than it appears. Pension trustees won’t lower their standards to meet a political target, and they shouldn’t. If the UK pipeline looks thin or overpriced, the money will go to global strategies, and the signatories will have kept their word to the letter.
The view from the lending side
Policy can change who holds the capital. It cannot change what that capital needs in return. A pension fund under pressure on fees and value for money will always prefer a £500 million allocation to one large manager over twenty £25 million tickets to specialist lenders, however much Westminster would like it otherwise.
The uncomfortable irony: British savings, American managers
There’s a further twist the speeches tend to skip. Much of the machinery now absorbing UK pension money belongs to global, and largely American, alternative asset managers. Apollo holds a minority stake in Athora, which bought Pension Insurance Corporation; the combined group now looks after about £118 billion for some 3.1 million UK savers and retirees. Brookfield has acquired Just Group. Blackstone supplies private credit to Legal & General. Standard Life has built a private markets partnership with CVC, Goldman Sachs and PGIM.
None of this is sinister. These firms bring scale and origination capacity that most UK institutions lack. But it means “British pension money for British business” often means British pension money run from New York, allocated to global portfolios, and measured against global opportunities. A UK credit gets no home advantage in those investment committees. It has to win on risk and return, like everything else.
The Bank of England has noticed. It has warned that margin pressure could push insurers to take on too much investment risk, and it has questioned whether some offshore reinsurance structures hold enough capital. That scrutiny won’t stop the flow, but it will keep insurer money at the conservative end of the credit spectrum: far from the mid-market.
Where the lower mid-market actually fits
So is there anything here for a lower mid-market, sub-investment grade borrower that needs a smaller ticket to fund an acquisition or refinance a bank facility? Yes, but it arrives by less glamorous routes than the headlines suggest.
Local government pools. Once consolidation settles, the six pools will need places to put their local and regional allocations. Direct lending to established regional businesses offers something venture capital and housing can’t: a contractual return, security, and jobs that trustees and councillors can point to. I’d expect pools to back regional and lower mid-market lending funds rather than lend directly, at least at first. Those managers will be a new and motivated source of capital for UK companies from 2027.
UK-labelled lower mid-market funds. Managers have read the Accord too. Expect a wave of fundraising pitched explicitly at “UK growth” and “productive finance”, aimed at defined contribution and local government investors who need UK assets to meet their commitments. Some will be genuine strategies, with real origination flowing to UK companies; others will be more marketing-led, built to attract the pension money now looking for a UK label. For borrowers, more lenders chasing a limited pool of good UK credits is helpful: it supports pricing and terms for well-prepared companies.
The banks, with a state guarantee behind them. The least exciting development may matter most. In July the Chancellor announced that the British Business Bank would more than double the SME lending it supports, to £3.5 billion a year, reaching 20,000 businesses rather than 8,000, with Lloyds, NatWest and Allica each confirming £1 billion of extra SME lending over three years. For many smaller businesses, a guaranteed bank facility will still beat any private credit fund on cost.
Venture and growth equity, not debt. The first concrete Accord-era vehicle, the British Business Bank’s British Growth Partnership, reached a £200 million first close in April with Aegon, Cushon and M&G as investors. It invests in venture capital. That’s where the political energy has gone first, and it tells you something about the government’s priorities: startups, newly formed businesses and innovation ahead of the established companies that make up the larger part of the market. The first real money helps the few; the mid-market is the many.
What this means for you
- Know the pocket: Investment grade insurer money, pooled pension money, local government money and guaranteed bank lending each want different things. Asset-backed or contracted cash flows can open doors that a standard leveraged structure cannot.
- Expect a new kind of lender: Funds raising from pension investors will need to report on regional impact, employment and governance. Borrowers who can supply that data cleanly will be easier to lend to.
- Watch the tenor: Pension capital is patient by nature. As it filters into lower mid-market funds, longer maturities and more flexible amortisation should become easier to negotiate.
- Don’t wait: The meaningful flows to the lower mid-market are a 2027 to 2030 story. If you need capital in the next twelve months, the current market is the one you’ll be dealing with.
The other side of directed capital: too much money, too few deals
There’s a scenario worth taking seriously in which the policy works too well. If defined contribution and local government money arrives with a hard UK allocation to fill, and the pipeline of quality UK mid-market credits doesn’t grow at the same pace, the result is familiar: spreads compress, documentation loosens and capital flows to weaker businesses that would struggle to raise money on normal terms. The Standard Life report expects pension funds to hold 30% to 50% of their private allocations in the UK, compared with 5% to 10% of their listed equities. That’s a very strong home bias to impose on a market this size.
For good borrowers, a period of abundant domestic capital would be welcome, and there’d be money on the table for those who negotiate well. For the savers whose retirements depend on the returns, it would be less welcome. Credit cycles have a habit of punishing whoever lent into the most crowded part of the market with the least discrimination. A policy designed to help British savers could, if pushed too hard, end up making them the lender of last resort to British business.
The mandation-lite backstop makes that risk sharper, not softer. A reserve power that can’t be used before 2028 and falls away in 2032 still sets a direction of travel. Trustees know that if they fall short, the government may take the decision for them. Nothing distorts capital allocation quite like the threat of being told what to do.
So: lifeline, or a long way off?
My reading is that the pension reforms are real, overdue and, in the long run, good for UK companies. A deeper domestic pool of long-term capital is exactly what the British mid-market has lacked since the banks retreated after 2008. But the timetable in the speeches and the timetable in the market are different things. The money moving today goes mainly to investment grade assets through insurers. The defined contribution money is still building its plumbing. The local government money is stuck in consolidation.
For the business owner or finance director, two things follow. Treat the reforms as a structural tailwind for the second half of this decade, not a financing solution for next quarter. And when the new UK-focused lenders arrive with pension capital to deploy, make sure your business is ready to be the credit they want to back: clean reporting, a credible plan and a capital structure that fits the pocket of money you’re approaching. When the capital is plentiful, the advantage goes to the borrowers who are best prepared, not the ones who need it most.
Scott
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Frequently asked questions
What is the Mansion House Accord?
A voluntary commitment signed in May 2025 by 17 UK defined contribution pension providers to invest at least 10% of their main default funds in private markets by 2030, with at least 5% in UK private markets. It covers private equity, venture capital, infrastructure, property and private credit, and is subject to trustees’ fiduciary duties.
Can the government force pension funds to invest in UK private markets?
In limited circumstances. The Pension Schemes Act 2026 includes a reserve power to direct defined contribution schemes, capped at 10% of default fund assets and 5% in the UK. It cannot be used before 2028, is subject to a savers’ interest test and expires in 2032.
Will pension money make borrowing cheaper for mid-market companies?
Possibly, over time. As pension-backed lower mid-market funds grow, more capital competing for quality UK credits should support pricing and terms for well-prepared borrowers. Most of the flow today goes to investment grade assets through insurers, so the effect on mid-market pricing is likely to build from 2027 onwards.
Where should a UK mid-market business look for capital now?
It depends on the business. Established direct lenders, banks using British Business Bank guarantees, asset-based lenders and, increasingly, regionally focused funds each suit different profiles. The right answer depends on your cash flows, your assets and what you need the money to do.
About the author: Scott Townsley is an Investment Director who has spent more than two decades across private credit, leveraged finance, banking and high yield, structuring and advising on financings for lower- and mid-market UK and European businesses. He helps owners and finance directors work out which pocket of capital fits their business, and how to approach it. If this raises questions about your own position, get in touch, or subscribe for the weekly read.
This article draws on the Mansion House Accord announcement (City of London Corporation and Pensions UK, May 2025); the Chancellor’s Mansion House speech (HM Treasury, 14 July 2026); Pension Schemes Act 2026 summaries from Brodies and IPE reporting on the reserve power debate; Standard Life and WPI Economics, “From Scale to Impact: A Blueprint for the Future DC Pensions Market” (September 2026), as reported by Professional Paraplanner; Alternative Credit Investor reporting on UK insurer private credit holdings (March 2026) and LGPS pooling (April 2026); PipelineRoad reporting on private credit managers and UK defined benefit schemes (August 2026); Pensions Expert’s 2026 outlook; and British Business Bank announcements on the British Growth Partnership (April 2026). All figures are in sterling as reported by the sources. The views expressed are the author’s own and do not constitute investment advice.