Investment - Articles - Facilitating Investment in Illiquid Assets consultation

Aegon SPP and Hymans Robertson comment on the DWPs latest consultation on facilitating investment in illiquid assets

 Kate Smith, Head of Pensions at Aegon, comments: “This latest DWP consultation brings together a number of its proposed initiatives to facilitate greater investment by DC pension schemes in illiquid assets. Following an open and constructive dialogue we’re pleased that the Government has recognised that some of these initiatives should not be rushed and that none in isolation provide the ‘silver bullet’ to opening up greater investment in illiquids in DC schemes.

 “We’re pleased that the DWP has concluded that ‘bigger is not always better for all members’. The DC market is currently consolidating at a reasonable pace and is largely dependent on the capacity in the market for larger schemes to take on small schemes in an orderly way. Having too many schemes trying to consolidate at the same time would be disruptive and could easily backfire for members. We therefore welcome the Government’s decision not to go ahead with regulation forcing schemes with between £100 million and £5 billion assets to consolidate. We believe it’s far too early to do this. We need to see the impact of the current value for money regulations play out on smaller schemes and whether, if they fail the test, trustees decide to improve or wind-up. We therefore welcome the Government’s decision not to proceed with regulation to accelerate the pace of scheme consolidation and to refocus on the regulators’ joint value for money framework.

 “We’re also pleased that there will be further consultation ahead of any steps to remove performance fees from the auto-enrolment default fund charge cap.

 “We believe the proposals to require trustees to disclose their stance on investing in illiquid asset classes will need further thought. We welcome the DWP seeking to avoid making this a costly exercise. The key issue is who will truly find the new disclosures helpful and if they actually will change trustee investment behaviour. Ultimately, a key issue is that members of DC schemes now expect daily pricing and the ability to switch funds, transfer between schemes or access their benefits flexibly from age 55. These remain the main barriers to greater investment in illiquids.”

 Natalie WinterFrost Chair of the Investment Committee of the Society of Pension Professionals commented: “SPP welcomes this intended change, which will remove a barrier that had stopped Defined Contribution schemes accessing the full range of investment opportunities. However, we must insure that this change does not get abused – investments should only be available to savers in DC schemes when risk adjusted, net of fees returns are expected to be high enough. And we must not let fees creep up; unchecked, this change could lead to a shift towards more performance related fee models to escape the cap.”


 Callum Stewart, Head of DC Investment, says: “It is good to see the DWPs continued commitment to facilitating investment in illiquid assets with the publication of its consultation today. Investing in illiquid assets provides strong opportunities to improve financial outcomes for DC savers as well as have an impact on the world around us. It is a golden opportunity to create benefits for DC savers, and engage them more positively in how their pension is invested, while at the same time having an impact on the world around them.

 ”We are keen to see the government and the industry focus not just the long-term financial considerations, but also the potential to have positive real world impacts from illiquid investments. So far, discussions around value have centred too heavily on financial aspects, particularly costs and charges. Indeed, this consultation does not make clear reference to the potential to have positive environmental or social impacts from illiquid investments. It’s time to update the way we think about value to ensure that this is compatible with future DC saver and their real world needs. ”


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