The U.K. Department for Work and Pensions is seeking input from the retirement industry on its proposal to alter the way fees for alternative investments are calculated by defined contribution plans, to help them to invest in the assets within the charge cap.
The proposal was first made in the spring budget, announced March 3 by Chancellor of the Exchequer Rishi Sunak. The DWP wants to change the way plans calculate charges, spreading fees paid for alternative allocations over multiyear periods. The charge cap on DC default funds is 0.75% of assets under management and administration.
The DWP wants to know whether the charge cap is a barrier to plans entering higher-priced investments, such as venture capital and private equity strategies, including growth capital.
The consultation, launched Friday, will run until midnight GMT on April 16. The DWP will publish final draft regulations on any changes in June, alongside the outcomes of all other recent consultations aimed at improving retirement outcomes for DC plan participants.
Other proposed changes include requiring that trustees of plans with less than £100 million ($138 million) in assets consider joining multiemployer plans, known as master trusts, in order to boost scale if they are unable to prove they provide value to participants.
However, Nico Aspinall, CIO at B&CE, West Sussex, England, the provider of the £13 billion The People's Pension, said in an emailed comment that the proposed amendments regarding alternatives are not likely to change much. "The proposed measures are not likely to increase the flow of funds from defined contribution master trusts into expensive asset classes where managers commonly charge performance fees."
Mr. Aspinall said that larger workplace plans usually pay well below the charge cap already. "Consequently, most have a lot of headroom before they risk breaching the cap. While the charge cap has been hugely beneficial, it just isn't that relevant here," he said. "What matters is that investing in these asset classes would raise master trust charges above the level the market expects."