The U.K.'s Chancellor of the Exchequer unveiled a "mini budget" Friday aimed at making it easier for defined contribution plans to access illiquid asset classes, and other measures to stimulate economic growth, including tax cuts.
Delivering the emergency budget to the House of Commons, Kwasi Kwarteng said he would "accelerate" reforms to remove performance fees from the charge cap applied to defined contribution plans, as a way of spurring investment in science and technology businesses in the U.K.
The charge cap currently prevents defined contribution plans from applying annual charges of more than 0.75% on a participant's account.
"We will accelerate reforms to the pension charge cap, so that it will no longer apply to well-designed performance fees," Mr. Kwarteng said in his presentation. "This will unlock pension fund investments into U.K. assets and into innovative, high-growth businesses." He also promised that the U.K. would provide up to £500 million ($570 million) to support investment in innovative businesses through a new Long-Term Investment for Technology & Science competition.
Removing the charge cap sounds good in principle, but there are "a number of hurdles to overcome before DC savers can benefit from investing at scale in private markets," said Chris Inman, partner and head of DC investment advisory at Aon, in a separate statement.
"Many life-insured and investment platforms will have to make significant developments to their liquidity management policies/systems and governance teams so that they are able to launch these funds," and fund managers will need to see sufficient scale to commit resources to launch funds that provide access to alternative assets, he said. And with trustees focused on costs, they may be hesitant to jump in, "especially as the fees they publish may come under scrutiny," Mr. Inman said.