Occupational pension scheme investments to be widened

The Department for Work and Pensions (DWP) is consulting on proposals to encourage defined contribution (DC) pension schemes to invest more widely, in areas such as start-up companies, housing, and green energy, to boost returns and encourage economic development

The proposals also include requiring large schemes to publish their policies and report every year on how much they allocate to the types of investment the government is keen to encourage. ‘Large’ could be defined by the number of members, with a minimum of 5,000 or 20,000, or by the scheme having assets above a certain level, perhaps £250m or £1bn.

Smaller schemes would be required to assess, every three years, whether they should consolidate into a larger scheme. A small scheme could be defined as having under 1,000 members or less than £10m in assets.

There would also be changes to how schemes calculate charges. The consultation asks for view on the extent to which the charge cap compliance mechanism is a barrier to accessing funds which charge a performance fee, and is also examining the introduction of appropriate performance fee structures.

The government says assets in occupational DC schemes have almost tripled to £60bn since the start of 2011 and have been boosted by the introduction of automatic enrolment into workplace pensions.

Guy Opperman, minister for pensions and financial inclusion, said: ‘Pension schemes could consider opportunities for more innovative, long-term investment offering members the potential for better returns – and the UK economy billions of pounds of funding that can boost jobs, productivity and growth.

‘We can do more to attract new investment into important sectors of the economy which would boost employment and help to build stronger, more sustainable communities. At the same time, this approach would give savers more pride in their pensions while delivering good returns.’

The consultation document says the majority of DC investors hold their pension savings for the long term, but that the schemes have been unable to invest in less liquid investments, such as infrastructure, which would deliver returns longer term. While schemes are increasing in size, and consolidation is taking place, it could be accelerated –the UK still has at least twenty times more schemes than Australia or the Netherlands.

The consultation closes on 1 April.

Investment Innovation and Future Consolidation: A Consultation on the Consideration of Illiquid Assets and the Development of Scale in Occupational Defined Contribution schemes is here.

Report by Pat Sweet

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