Joe Dabrowski, Deputy Director of Policy, PLSA, said: “The PLSA welcomes the intent to make it easier for DC schemes to invest in a wider range of assets and illiquid investments but has not seen any compelling evidence to suggest that raising the current DC default charge cap of 0.75% will result in any material change in the volume of investment in illiquids.
“A focus by employers on securing low-cost provision in a competitive market; the prudent person principle, which requires schemes to take careful consideration of risk and reward; and operational barriers, such as the flexibility to move pots when requested and daily dealing, result in only a very low proportion of scheme investment in such assets. Recent proposals to allow for a smoothing of costs over a five-year period may alter this in time, but it is too early to tell.
“Overcoming behavioural barriers will require regulatory consistency, and whilst finding the right solution is sensible, it is surprising to see that recent proposals to allow for a smoothing of costs over a five year period may be abandoned, before they have had time to take effect.
“The charge cap is an important consumer protection that helps derive better value for money for pension savers.
“Pension schemes will always be interested in investing in assets which have a strong likelihood of delivering higher returns over the long term, but these opportunities must be cost transparent, suitable for their members and provide value for money.
“For the growth in investment in productive finance it is important that new and innovative products, such as the LTAF, come to the market and meet pensions schemes’ needs, rather than simply a reliance on traditional investment vehicles’ fee models.”
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