The U.K. government has reiterated its commitment to making it easier for defined contribution plans to boost investments in illiquid assets.
Rishi Sunak, U.K. Chancellor of the Exchequer, set out in his spring budget 2021 speech Wednesday plans to strengthen public finances and lead an investment-driven recovery following the economic damage caused by the coronavirus pandemic.
The government's plans include amending the way DC fees — capped at 0.75% of assets under management and administration — are calculated. By smoothing, or spreading the performance fees charged by managers over multiple years rather than looking at an individual year's fees, the government hopes to facilitate DC investment in illiquid strategies.
The U.K. Department for Work and Pensions will draft new fee cap regulations within a month and then consult with the industry.
The proposed changes were largely welcomed by the industry.
"We welcome the government's commitment to exploring how they can remove barriers to investing in illiquid assets. We believe some 'illiquid' assets can improve member outcomes at retirement and as schemes become larger, the more traditional problems such as daily liquidity are likely to be less of a challenge," William Chan, head of DC investment at U.K. consultant Hymans Robertson, said in an emailed comment.
Mark Fawcett, CIO of multiemployer defined contribution plan National Employment Savings Trust, London, said in a separate comment that as the global economy recovers from the pandemic, there is also potential for investments in new green technology and in digital innovation.
"We want to give our members a bigger pension in a better world, which is why we welcome government smoothing the way for institutional investors to deploy more patient capital where we see the right opportunities," he said. NEST has £16 billion ($22.4 billion) in assets.
In the budget announcement, the government also said that it will begin to issue green gilts in the summer. Green gilts will be particularly appealing for funded defined benefit plans as they are less risky when compared to investing directly in green energy projects, said Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association. Mr. Peaple added that pension fund trustees need a broader array of investments to meet their climate ambitions.
