The Treasury is considering lifting the charge cap on workplace pensions to facilitate investment in more expensive illiquid assets to support Govt infrastructure spending, according to media reports.
According to reports in the FT, the Govt is looking to lift the 0.75 per cent annual management fee cap, enacted in 2016 to safeguard automatically enrolled people from exorbitant fees, as part of a push to channel billions of pounds in pension fund assets into projects such as infrastructure, renewable energy, and tech startups.
The idea of raising the charge cap runs contrary to statements made at the Corporate Adviser Summit last week by DWP DC investment and governance private pensions policy adviser Andrew Blair.
Blair pointed out that the average large master trust levies charges of around 0.4 per cent a year, almost half the 0.75 per cent cap on workplace pension funds, leaving plenty of scope for schemes to spend more on illiquids without breaking the existing cap.
Instead Blair focused on encouraging the industry to shift its focus away from cost. He said the Govt had helped remove some of the obstacles such as cost, daily pricing concerns, liquidity management, and assuring adequate supply, which has historically prevented DC funds from investing in these areas.
Though the Govt is interested in finding ways to assist DC plans in investing in private markets and illiquid assets, Blair said there were no plans to make it mandatory, and trustees’ fiduciary responsibility will remain essential.
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says: “We support moves to make it easier for scheme members to invest in more illiquid assets like infrastructure and private equity. The charge cap was introduced to ensure people got value for money from their pensions and average charges are currently way below 0.75 per cent. However, cost is not the only driver of value and it is clear the use of the cap makes it difficult for schemes to invest in areas with potential for improved returns. Any review needs to strike a balance in ensuring members continue to receive value for money which means quality products at sensible costs.”
The Treasury declined to comment.