The Department for Work and Pensions has outlined proposals to
enable automatic enrolment pension schemes to make greater use of
performance-based fees, which are payable to an investment
manager only if they generate high returns on their investments.
Currently these fees are included within the pension scheme
charge cap, meaning they are rarely considered viable.
If implemented, these performance fees would be excluded from the
charge cap, helping schemes – if they choose to utilise it -
overcome barriers to long-term investment and provide new
opportunities to invest in areas such as British businesses and
green projects.
The intention is to make it easier for schemes to access new
channels of investment – such as funding for new British
start-ups and the infrastructure needed for the transition to net
zero – known as “illiquid investments”. This move can offer
greater returns to savers whilst continuing to ensure they remain
protected from being charged high fees despite low returns.
Minister for Pensions, , said:
As automatic enrolment has developed, we have always wanted to
ensure the best outcomes for members. This consultation will look
at ways to enable schemes to take advantage of long-term,
illiquid investment opportunities and provide better returns for
members.
Lifting these barriers can also help contribute to the key role
finance has in tackling climate change, by mobilising private
finance towards clean and resilient growth and addressing market
barriers to longer-term investing in green projects.
The ‘Enabling Investment in Productive Finance’ consultation,
announced at the Budget, builds upon the principles laid out in
previous consultations on improving member outcomes and
addressing barriers to long-term illiquid investment.
Responses from these previous consultations have highlighted
industry support for the objective of providing trustees with
greater flexibility when it comes to performance fees and the
charge cap.
The latest consultation will investigate ways the government can
facilitate that, while ensuring that the current protections in
place to shield members from high and unfair charges are not
diluted.
Further information
- The consultation period begins on 30 November 2021 and the
final date for submission of responses will be midnight on 18
January 2022.
- Read the Enabling Investment in
Productive Finance consultation on GOV.UK.
