U.K. financial regulators issued recommendations Monday aimed at making it easier for defined contribution plan participants to invest in less-liquid assets.
The productive finance working group's report, A Roadmap for Increasing Productive Finance Investment, made four recommendations with specific actions for both the industry and government. The group includes officials with the Bank of England, the Financial Conduct Authority and the Treasury.
The recommendations include encouraging plan trustees to consider less-liquid assets; increasing scale by continuing to consolidate smaller plans; building industry support for liquidity management; and having the FCA consider removing a 35% cap on illiquid investments.
"Appropriately managed, investment in such assets has the potential to generate better returns for investors, including those saving for retirement in defined contribution pension schemes, given their typically long-term investment horizons," the report said.
Defined contribution assets are now total more than £500 billion ($687 billion) and are expected to double to £1 trillion by 2030.
Expanding access to less-liquid investments like infrastructure will also benefit the wider economy, the regulators said in a news release, and would support a long-term asset fund being developed in the U.K.
FCA Chief Executive Nikhil Rathi said in the news release: "Defined contribution pension schemes have increased in importance over the past 10 years with increasing numbers of people using them to save for their retirement. Supporting access to different investment opportunities, which have the possibility to provide more diversified returns to members as well as benefiting the wider economy, is important. The working group produced a group of recommendations that could really make the difference and my colleagues and I at the FCA look forward to working with the industry and others to ensure they are implemented."
Richard Butcher, chairman of the Pensions and Lifetime Savings Association, said in a separate statement that the recommendations "will provide an important launch pad from which we can seek to resolve the detailed operational and systemic barriers that inhibit pension funds who wish to invest in productive finance and illiquid assets. If we can succeed in this ambition, there is a real opportunity for a win-win here: an alignment of the national interest with the interest of pension fund savers."
