Updated with correction
U.K. defined contribution plans are missing out on higher returns due to a lack of venture capital investments, according to a report from global management consultant Oliver Wyman and British Business Bank.
Building on a Patient Capital Review launched by the U.K. chancellor of the exchequer in October 2018 that focused on providing long-term financing for growth and innovation in the country, the report outlines how DC plans could boost returns for their plan participants.
The report — "The Future of Defined Contribution Pensions: Enabling Access to Venture Capital and Growth Equity" — recommends regulatory changes related to fee caps to facilitate venture capital and growth equity investments and urges DC plans to use their growing scale to create pooled investment vehicles. It also urges managers to develop reduced fees with DC-focused options.
The report also said a 22-year old participant's savings could be boosted by 7% to 12% if the plan made a small allocation to venture capital and growth equity funds.
"The aim of this study is to enable better long-term retirement outcomes to the U.K.'s defined contribution pension savers with a focus on commercial solutions that could be implemented in the private sector," said Keith Morgan, CEO of British Business Bank, in a news release. "It is incumbent on defined contribution pension schemes to consider how to include investments in the U.K.'s fastest growing and most innovative companies."
Gregg McClymont, group director of policy and external affairs at the £7 billion ($8.7 billion) defined contribution multiemployer plan The People's Pension, West Sussex, England, said: "The report from the British Business Bank describes an issue that should resolve itself. The sector is building scale fast and, with it, the economies of scale that will allow master trusts to invest more in more expensive asset classes. The report is right to suggest that the venture capital industry should develop charging structures compatible with the charge cap. The charge cap exists to protect consumers and its integrity should be maintained."
