The Mandation Red Line
Once politicians control where pensions invest, the money is never fully private again.
McPhail draws a firm line between incentivising pension investment in the UK economy and compelling it. The distinction matters not just in degree but in kind. Once a legislative power exists allowing a minister to direct how private pension savings are invested, that power does not retire when the minister does. McPhail's framing uses Chekhov's Gun: 'If there's a gun on the wall in the play, it will get fired.' The mandation power will eventually be used in ways its architects would not sanction.
The Adam Smith quotation McPhail cites from 1776 is precise: the statesman who would direct private individuals how to invest their capital 'would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.' The danger is not the current minister's intentions but the institutional precedent being set. McPhail asks the listener to think of the worst politician they know — the one who makes their skin crawl when they appear on television — and imagine that person controlling their pension fund. That is what the mandation reserve power enables.
The alternative McPhail proposes is not indifference to UK investment, but incentive-based architecture: tax breaks for pension schemes investing in qualifying UK infrastructure, better planning reform to make infrastructure investable, and creating genuine market-rate opportunities rather than compelling allocation. The goal (more UK infrastructure investment) is shared; the means (compulsion versus incentive) is the red line.
- Investment compulsion and investment incentives are categorically different — one creates a precedent for political control over private savings that cannot be easily reversed.
- The mandation power is assessed not by the intentions of the current minister but by its availability to any future minister.
- If the investment case for UK infrastructure is sound, pension schemes should be persuaded by returns — not required by law.
- Creating investment pathways, planning reform, and tax incentives is the legitimate government role; directive power is not.
- Historical UK infrastructure investment returns have lagged US equity returns over the same period — compelling pension schemes toward UK assets would have harmed members.
- Distinguish the goal from the mechanismSeparate the stated policy objective (more UK infrastructure investment) from the proposed mechanism (mandation reserve power). Assess whether the mechanism is necessary to achieve the goal or whether alternative mechanisms (tax incentives, planning reform, risk-sharing vehicles) would achieve the same result without the negative precedent.Pro tipMcPhail suggests asking: 'What could you have done to achieve this goal voluntarily? What incentives could you have created? Why did you skip straight to compulsion?'
- Apply the worst-actor testEvaluate any proposed government power over pension investment by imagining it in the hands of the politician you trust least. If the power is dangerous in those hands, the institutional architecture is wrong regardless of the current minister's good intentions.WarningThis test is not partisan — it applies regardless of which party introduces the power. The concern is the power itself, not who holds it today.
- Check the evidence base for the assumed benefitDWP's own analysis of pension scheme size versus investment returns showed near-zero correlation — larger schemes did not deliver better returns. Before accepting the mandation rationale, examine whether the assumed mechanism (larger funds invest better in UK assets) has an evidence base.Pro tipMcPhail notes the DWP correlation chart: 'You'd get more correlation if you got a hillbilly to fire buckshot at a road sign.' Examine the evidence behind any claimed benefit before conceding the compulsion principle.
- Advocate for incentive-based alternativesTax breaks for pension investment in qualifying UK assets, planning reform to make infrastructure projects financially viable, and co-investment vehicles with government risk-sharing all achieve the same capital allocation goal without creating a compulsion precedent. Push for these as the primary policy tool.WarningAccepting mandation 'just this once' for a small allocation (Australia's super funds put 23% in Australian assets versus the proposed 5% in the UK) concedes the principle. The percentage is irrelevant; the power is not.
The 2025 Pensions Bill grants the pensions minister reserve power to mandate pension scheme investment toward specified asset classes. The government presented this as voluntary — the industry should hit 5% UK private market allocation voluntarily, with mandation available if they don't. McPhail compares this to a Mafia offer: 'We want you to do this voluntarily — but we've got a stick in the corner if you don't.'
McPhail quotes The Wealth of Nations directly: the statesman who would direct private people how to invest their capital assumes an authority 'which could safely be trusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.'
Over the decade preceding the episode, US equity markets dramatically outperformed UK equity markets. Had pension scheme trustees been mandated to hold UK equities or infrastructure at that time, scheme members would have suffered materially worse returns.
McPhail developed this position through years of work at the intersection of pension policy and investment governance. The 2025 Pensions Bill introduced a reserve mandation power — described as 'voluntary' but backed by compulsion if the industry did not comply. McPhail saw this as a category error: the pension industry's duty is to scheme members, not to national economic strategy. He observed that no correlation exists between fund size and investment returns in DWP's own analysis, undermining the assumption that large consolidated funds would naturally invest in UK growth if directed. The question became: if the evidence does not support the strategy and the tool is compulsion, what justification remains?