Government mobilises £60 billion pension scheme assets to invest in UK Plc

Tom Selby
6 February 2019

The Department for Work and Pensions (DWP) has today published a consultation seeking to encourage occupational pension schemes to invest in long-term UK infrastructure.
You can read the full document here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/776181/consultation-investment-innovation-and-future-consolidation.pdf
Key points:

  • Smaller pension schemes will be encouraged to merge in order to benefit from economies of scale, improved governance and greater investment choice
  • Government looking at ways to flex the 0.75% workplace pensions charge cap to incorporate performance fees – although level of the cap will not change
  • Average workplace pension charges currently sit somewhere between 0.38% and 0.54%, giving trustees scope for “innovative investments”
  • Consultation looks to build on HM Treasury’s ‘Patient Capital Review’ and encourage pension schemes to plough members’ funds into illiquid assets such as UK infrastructure and ‘green’ energy

Tom Selby, senior analyst at AJ Bell, comments:
“The Government clearly wants to mobilise £60 billion of pension money to boost investment in UK Plc. However, trustees of pension schemes have a duty to maximise returns for members and will therefore need to take a dispassionate view as they develop and review investment strategies.
“While the idea of incorporating complex and potentially value eroding performance fees within the charge cap will inevitably set alarm bells ringing, the key is the amount that ultimately leaves members’ funds in pounds and pence.
“The fact the cap itself will remain at 0.75% regardless of the charging structure used should help ensure savers who are defaulted into a fund continue to benefit from a degree of protection.
“However, one of the best ways to maximise investment returns for members is to keep costs and charges as low as possible. As funds grow in size, in theory their costs should reduce and that saving should then be passed on to the end investor.
“Some would argue that schemes would do better to focus on further reducing charges to grow scale, rather than using any ‘headroom’ they have beneath the charge cap to invest in ‘innovative’ projects.”

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