Govt pledges to 'consider' pension charge cap criticism

The DWP said it had “taken on board” the “mixed reaction” to the proposals, and would “take time to fully understand all the concerns raised, engage further, and to explore how these concerns might be addressed in the design of the policy as we pursue this further”.

It said it would consult again on “principle-based draft guidance alongside any proposed consultation on draft regulations”.

Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, said: “We do not support changing the charge cap to exclude performance fees. The cap provides an important protection for millions of automatic enrolment savers.

“We have not seen enough evidence to suggest the change would improve outcomes for members. In our view, changes to the cap are also unlikely to fundamentally alter schemes’ ability to invest in illiquid assets or the volume of investments in the round.”

New measures for illiquids

The combined response included a new consultation into various changes the DWP hopes will encourage greater access to illiquids. One such is the introduction of “disclose and explain” requirements designed to compel “relevant [DC] schemes” to set out their policies around illiquid investment.

Alongside this are regulations to compel DC schemes with over £100mn in total assets to disclose and explain their default asset class allocation in their annual chair’s statement.

The proposals are designed to “encourage greater competition and innovation based on overall value for money in the DC market,” the DWP said.

“If all agents have access to asset allocation information, we believe members, employers, consultants will be able to compare schemes alongside other key metrics, including the scheme’s net investment returns, charges and quality of service. 

"In this vein, we believe this will complement the work of the [Financial Conduct Authority] and The Pensions Regulator to create a single framework for value for money in DC pensions.”

The DWP stressed that the proposed regulations would not require trustees to make any changes to their strategies, but rather to encourage them to “reflect on the decisions they have already made”.

The consultation proposes amendments to the statement of investment principles that would see DC schemes explain their policy on illiquids in their triennials SIPs, and for schemes with more than £100mn in assets to disclose the per centage of assets in their default fund allocated to seven main asset classes in their annual chair’s statement.

These asset classes are: cash, bonds, listed equities, private equity, property, infrastructure and private debt.

It also proposes qualifying a number of restrictions on employer-related investments. The DWP believes that these rules, though appropriate for the type of schemes available at the time, now unduly limit master trusts’ investments in particular.