Labour accuses government of undermining pensions ‘consensus’

Speaking at a Trades Union Congress conference on March 30, Ashworth drew particular attention to the government’s proposals for removing performance fees from the charge cap in order to encourage defined contribution schemes to invest in illiquid assets, questioning the need for such a move.

“The principle that pension reform should proceed on the basis of long-term consensus is a really, really important one,” he said.

“But I do fear that the decisions taken by the chancellor now mean that consensus is crumbling.”

He pointed to the government’s decision to suspend the triple lock as one such example, but was at pains to highlight the potential implications of removing performance fees from the charge cap as another case in point.

The government published its response to the consultation on those proposals on March 30 as part of a combined publication looking at various ways to increase DC investment in illiquids.

Experts had previously been cool on the suggestion of removing performance fees from the 0.75 per cent charge cap. Performance fees, often applied to private market assets like venture capital, are payable when investment managers generate high returns.

The government acknowledged the industry’s concerns and said it would take time to consider the responses before deciding whether to proceed with the measure.

But Ashworth questioned why the government had felt it necessary to consider it in the first place.

He suggested that capped investment charges were "needed" to protect workers from "rip off fees", and that proposals to exclude performance fees in service of big infrastructure projects could turn pensions into a "piggy bank" and result in "another payday for the fund management industry".

He pointed to data published by Pensions Expert and MandateWire showing that private market allocation accounted for almost 46 per cent of all DC investments last year, almost double 2019's figure, and likewise the fact that Nest and Smart Pension have been able to make infrastructure investments within the existing price cap.

"The question I have is: why do Tory ministers think changing the cap is necessary?

“I've asked ministers what assessment has been made on the ability of high-charging fund managers to lower or restructure their fee arrangements within the existing charge cap; and strangely, no such assessments have been carried out,” he continued.

“I’ve asked what assessment has been made of the potential for member detriment as a result of fund managers or pension providers changing their fee structure to have new performance-related fees or increase existing performance. No one in government seems to have thought about that, either.”

He said Labour would “be studying the eventual consultation response closely” and would have “no hesitation in voting against the regulations without a strong evidence base for change”.

He did, however, promise to work “constructively” with the government on auto-enrolment expansion and expressed his support for collective defined contribution schemes, saying he hoped the government will bring forward legislation on the former before the next election, expected in 2024.