Spring Budget 2021: Govt to launch pension charge cap consultation; encourages broader DC investment

Chancellor, Rishi Sunak, has confirmed plans to remove "barriers" in pension regulation that may have discouraged defined contribution (DC) pension schemes from investing in high-growth companies.

The Spring Budget documents also revealed plans to consult on whether certain costs within the charge cap affect pension schemes’ ability to invest in a broader range of assets “within the next month”.

It stated that this would aim to ensure pension schemes are not discouraged from such investments and are able to offer the highest possible return for savers.

It also confirmed that the Department for Work and Pensions will be proposing draft regulations designed to make it easier for schemes to take up such opportunities within the charge cap by smoothing certain performance fees over a multi-year period.

The government growth plan outlined three core pillars of growth: infrastructure, skills and innovation, with the latter category outlining plans to support access to finance to “unleash innovation”, including reforms to address disincentives for pension funds to invest in high-growth companies.

The report, entitled Build Back Better, our plan for growth, stated: "There remains a largely untapped pool of capital from institutional investors, particularly DC pension schemes.

"Government and financial regulators have removed a range of regulatory barriers to ensure that pension savers can access the returns offered by venture capital and growth equity, as part of a balanced portfolio.

"Government will consult in the next month on whether certain costs affect DC pension
schemes’ ability to invest in a broader range of assets."

The consultation follows a similar government consultation from September 2020.

Scottish Widows head of policy, pensions and investments, Peter Glancy, argued that the plans could represent a "much needed boost" for the economy following the pandemic.

He stated: “By allowing pension funds to invest in the redevelopment of the country’s infrastructure and economic initiatives, trillions of pounds invested in UK pensions could provide a much needed boost as Britain looks to bounce back from Covid-19.

“This could also be great news for pension savers, whose pension pots would benefit from the returns on these investments in the long run.

"We await the Financial Conduct Authority consultation promised today by the Chancellor.”

Audley Group COO, Nick Edwards, has also highlighted the plans as a "welcome move" to encourage pension funds to diversify investments and achieve higher returns, given the pressure on the pension system.

“Pension funds are to be given more flexibility to unlock money to invest in innovative ventures. We don’t have all the details on what exactly this means yet and will wait for the draft regulation," he stated.

"But, freeing up institutional investors to move away from traditional assets, into alternatives could be bring about major change.

"And, given the pressure on the pension system, it’s a welcome move to encourage pension funds to diversify investments and achieve higher returns."

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