Opportunities and risks around the government’s push to remove barriers to defined pension schemes to unlock higher returns from illiquid investments

November 15, 2021
Parminder K Latimer


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Are workplace pensions about to get supercharged? The Budget was a relatively quiet affair when it came to pensions due to the more significant announcements being made earlier this year.

However, the Chancellor’s only explicit reference came when he said he will consult on further changes to the regulatory charge cap for defined contribution auto-enrolment pension schemes in a bid to ‘unlock institutional investment while protecting savers’.

Could this be yet another signal that the government is going to accelerate efforts to remove barriers to making illiquid investments?

gunnercooke Pensions Partner Parminder Latimer comments:

“There was little to get excited about in the budget from a pensions perspective aside from low earners receiving a boost thanks to tweaks to pension tax relief administration that will address the inequality between Net Pay arrangements and Relief at Source.

“More intriguing was the mood music created by the promise to consult on changes to the regulatory charge cap for defined contribution auto-enrolment pension schemes.

“This is not the first time this has been discussed but its presence in the Budget, and how it was aligned to the wider context of boosting economic activity, could be telling.

“It seems that the government is very keen on unlocking the huge financial fire power of workplace schemes and using it to generate significant and sustained investment in innovative growth sectors such as renewable energy.

“There is potentially much to be gained for pension scheme members, business, government and society if there is a significant inflow of new institutional investment across key areas of the economy.

“Implementing the regulatory change will be complex and require ongoing oversight, particularly to ensure the aim of enabling ‘well-designed performance fees’ is realised and that removing the cap doesn’t precipitate an increase in charges across the board.

“The consultation is likely to create some fascinating insights into how much appetite managers, trustees and pension scheme members have for participating in higher-risk, higher-reward investment.

“Will interest be focused on long-term, ‘safe bets’ like infrastructure rather than ‘racy’ assets like private equity?

“The latter has performance fees associated with it that are hard to factor in and then there are considerations around how drawdown charges may need to adapt when dealing with illiquid assets.

“There is the potential that the mere concept of higher charges creates suspicion and resistance from members and consumer champions which shapes the consultation or speed and scale of reforms.

“It will be fascinating to see this play out and we’ll remain across the detail to ensure clients are informed and prepared for any impact this may have on them.”

If you have any specific concerns, then please contact Parminder Latimer: [email protected] who was recently nominated at the Women In Pensions Awards.