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Defined Contribution

U.K. unveils plan to bring DC plans into ‘patient capital’ universe

The U.K. government wants to further unlock defined contribution plan assets to allow greater investment in "patient capital," providing long-term financing for growth and innovation in the country.

In a Budget 2018 document, the government outlined four areas of development to help the expected £1 trillion ($1.3 trillion) in DC assets more easily finance innovative, high-growth firms in the U.K.

The Department for Work and Pensions is to consult next year "on the function of the pensions charge cap," a 75-basis-point limit on default fund costs, "to ensure that it does not unduly restrict the use of performance fees within default pension schemes, while maintaining member protections," said the document.

The second move is to support retirement funds looking to invest in growing U.K. businesses, via the British Business Bank. The document noted several DC plans in the U.K. already have committed to working with the bank to look at pooled investment in patient capital, including the £3.8 billion National Employment Savings Trust, London.

Further, the Financial Conduct Authority will publish a discussion paper by the end of the year looking at how effectively the U.K.'s existing regime enables investment in patient capital. "This will accompany the ongoing work of HM Treasury's Asset Management Taskforce to explore the feasibility of a new long-term asset fund," said the document.

The final move is for the FCA to consult on updating a framework that allows unit-linked retirement plans — types that are provided by insurance companies — to invest "in an appropriate range of patient capital assets."

Retirement plans featured several times in the budget document. The government made reference to the Pensions Dashboard, a tool where participants can see all of their retirement information in one place.

"The budget confirms that the (Department for Work and Pensions) will consult later this year on the detailed design for pensions dashboards, and on how an industry-led approach could harness innovation while protecting consumers. DWP will work closely with the pensions industry and financial technology firms. The budget provides extra funding in 2019-'20 to help make this a reality," said the document.

Finally, the document said the DWP will publish a paper this winter setting out the government's approach to increasing retirement participation and savings persistence among the self-employed.