On the go: The pensions minister has suggested that defined contribution schemes currently have room to invest in illiquids within the charge cap.
Speaking at the Pensions and Lifetime Savings Association Investment conference on Tuesday, Guy Opperman told delegates that the average large DC master trusts are charging members 0.4 per cent within a cap of 0.75 per cent.
As such, he recommended that rather than remove a cap that schemes are using “barely half of”, they should use this as a hedging opportunity.
Opperman said: “If spending does bring higher returns, particularly in the long term, then take that argument to the members that you have and justify any mild increase in charges in the name of greater retirement income.”
This follows chancellor Rishi Sunak’s announcement of a consultation into investment rules to support the economy post-Covid at the 2021 Budget on March 3.
At the time, the chancellor said the government was “taking steps to give the pensions industry more flexibility to unlock billions of pounds from pension funds into innovative new ventures”.
According to the Budget documents, the consultation is set to analyse whether certain costs within the charge cap affect pension schemes’ ability to invest in a broader range of assets.
The goal is to ensure that pension schemes are not discouraged from such investments and are able to offer the “highest possible return for savers”.
Additionally, the Department for Work and Pensions will come forward with draft regulations to make it easier for schemes to take up these opportunities within the charge cap by smoothing certain performance fees in a multi-year period.
Opperman also encouraged trustees to use illiquids in their investment strategies as opposed to traditional strategies, historically dominated by gilts and equities, during his speech at the PLSA conference.
He said: “Over the past decade, DC scheme investment strategies have traditionally been a blend of public equity and corporate bonds, appropriate for a maturing market, and that market is now changing and it is well established, and schemes need to consider innovating their portfolios.”
He added that the shift from the traditional 75 per cent in gilts or equities to illiquids should be “perfectly, properly allowed”.
Elsewhere, Opperman said he was “passionate about trying to simplify the pensions system”, with the simple annual statement as a key component of the government’s future strategy.
He explained that officials are working on details of regulations that they will consult on shortly, aimed at a spring or summer launch.
The goal would be to turn up the dial on engagement in ways that have not been done, he revealed.
