Pension funds and the drive for greater domestic investments – the international perspective

Domestic investment initiatives from governments are on the rise as governments around the world are recognising the opportunity pension funds present to boost economic growth. However, the push for increased domestic investment by pension funds has not avoided criticism - with concerns being raised on the impact to members' best interests. The UK, Canada, Germany and the Netherlands are all countries pursuing the use of pension funds to boost domestic growth in specific sectors.

The UK approach

The UK has been particularly active over the past year in seeking to direct a greater share of pension savings into UK private markets. In May 2025, the Mansion House Accord established a voluntary agreement between 17 of the largest workplace pension providers. The agreement allocates 5% of defined contribution funds to UK markets. 

Later in the year the Pensions Schemes Bill was introduced to Parliament containing enabling provisions to allow the government to pass regulations mandating a specified level of domestic investment for the default funds of master trusts and GPPs used for automatic enrolment. It is yet to be seen whether these provisions will form part of the final Act and if so what they will require, and whether they will ever be used.  At present they are scant on detail to say the least, and very much badged as a “backstop” power, to be used only if target levels of domestic investment are not reached through voluntary commitments such as the Mansion House Accord.

In October 2025, HM Treasury announced a further initiative between 20 of the largest pension providers and insurers in the UK, named the “Sterling 20”. The Sterling 20 is an investor-led partnership that plans to work with the Government to support regional growth and direct savings into key infrastructure and sectors. The then Lord Mayor of London, Alastair King, commented the announcement signals "a clear industry commitment to channel investment directly into UK growth". The initiative focuses on channelling investment into key areas such as infrastructure, AI and fintech.

International trends

The UK is not alone in encouraging more national investment by pension funds - there are policy initiatives in other jurisdictions with a focus on encouraging domestic investment.

In Canada for example, a Major Projects Office has been established with the aim of streamlining the development of and ensuring completion of national infrastructure projects, improving the investment environment for institutions such as pension funds. The Major Projects Office supports investment in energy, port expansion and critical mineral-related projects.

In 2025, the German government implemented an allowance permitting pension funds to invest up to 5% of their guaranteed assets in infrastructure projects. Crucially, this 5% allowance sits outside the usual investment limits on real estate, private equity and other categories through which infrastructure projects were invested. The allowance provides pension funds with greater opportunity to invest in national infrastructure, as infrastructure investment now has less competition with other investment types.

In the Netherlands, there is ongoing dialogue between pension funds and the Dutch Government in relation to domestic investment, with pensions being viewed as an option to address the national housing shortage. Collectively Dutch pension funds have identified €12.7 billion available for investment in Dutch rental housing over the following 3 years, with major funds announcing their intentions to invest. Over the past year the Dutch Government has relaxed some building regulations and reduced the property transfer tax, removing barriers to invest in housing. Additionally, the Dutch pensions system is undergoing significant reform switching from a defined benefit to a defined contribution model. The transition will free up capital from long-term government bonds and create more flexibility in investment strategies which may encourage increased domestic investment depending on the demand from members and funds.

Fiduciary tensions

While the UK is not alone in its aims, the idea of mandating domestic investment differs from the incentives taking place in Canada, Germany, and the Netherlands. The idea of mandating domestic investment in the UK has received significant criticism surrounding the impact on the fiduciary duties of trustees. As set out above, the draft Pension Schemes Bill includes a power enabling the Government to lay regulations requiring master trusts and GPPs to meet minimum levels of investment in specified assets in their default funds. 

Fiduciary duties in the UK require trustees to act and invest in line with the best interests of scheme members, which is often interpreted as their best financial interests. Therefore, there are concerns a requirement to invest domestically could create conflict if the best interests of scheme members and national investment are not aligned. Parallels can be drawn with the tension between environmental, social, and governance (ESG) factors and fiduciary duties, where sustainable investment options may not provide the best financial return when compared to more traditional fossil fuels. However, in that scenario, as climate change risks are constantly evolving, it can be argued that over a long term investment period (such as pension scheme investments) investing while considering ESG factors can reduce the overall financial risk. It remains to be seen whether there can be a similarly strong argument for domestic investment returns.

The Pensions Minister, Torsten Bell, has promised statutory guidance will be published on fiduciary duties for trust-based private sector pensions - setting out how trustees can comply with their duties when considering wider factors. Going a step further an amendment to the Pensions Scheme Bill has been proposed (rejected in the Commons, but raised again in the House of Lords) which would require pension schemes to address ‘system-level considerations’ that are financially material, which could bring domestic growth factors directly into the scope of trustee considerations when interpreting best interests of members and beneficiaries. The UK Government has emphasised the provisions that would enable mandating of UK investment are only to be used as a last resort and the Bill contains protections to support trustees and members. However, critics still argue these protections do not go far enough. You can read more about the “backstop” power in our July article.

Comment

The UK would not be the first country to require domestic investment, with Poland and Slovakia having historic limits on foreign investment. However, with the current momentum surrounding domestic investment, mandating the domestic investment of pension funds has the potential to become an international trend if implemented successfully in the UK. 

With the continuous stream of challenges this controversial policy has faced so far and the criticism received, it remains to be seen whether these will act as a deterrent for international adoption. We will continue to monitor developments in this area with interest.

This article was written by Lauren Young and Maegan Watts