The Department for Work and Pensions has opened a consultation into whether the charge cap prevents pension schemes from investing in a range of alternatives, such as venture capital, illiquids and growth assets.
The consultation is in part a response to the “plan for growth” published by HM Treasury in its Budget on March 3, in which it announced plans to free-up defined contribution investment to play a part in the country’s post-Covid economic recovery, and the government’s green agenda.
In his foreword to the consultation, pensions minister Guy Opperman wrote: “Never has there been a better or more important time for a [DC] pension scheme to consider innovating their investment strategy.
“Investment in emerging sectors like green infrastructure or innovative British companies fits well with the long-term horizons of DC schemes, and are vital to helping sustain employment, our communities and the environment,” he wrote.
“As the chancellor announced at Budget 2021, we are now introducing flexibility and innovation for DC schemes to invest in such assets.”
One such measure would allow schemes to “smooth the incurrence” of performance fees, which are often payable on illiquid investments, over five years.
The use of a “rolling average” would allow schemes to exceed the 0.75 per cent charge cap occasionally through good performance without being penalised.
The government has reaffirmed its commitment to the 0.75 per cent charge cap, which it said has “helped to drive down costs for members and ensured that they continued to receive value for money on their investments”.
The consultation also called for views on the treatment of “look-through” costs.
“It has been raised with the government that the current position on look-through in relation to closed-ended investment structures reduces the attractiveness of such products among DC pension scheme trustees,” Opperman wrote.
It also carried forward a number of measures, first proposed in a consultation in September last year, designed to ease DC investments in illiquids, “including refocusing discussion on overall value, driving forward consolidation, and exempting costs of holding physical assets from the charge cap”.
The government aims to publish a response to this consultation, and that launched last September, in June this year.
Benjamin Mercer is a reporter at FTAdviser's sister publication Pensions Expert