PLSA IC 19: Charge cap 'almost an irrelevance' in DC scheme investment

The charge cap on defined contribution pension scheme investments is “almost an irrelevance”, according to Legal & General Investment Management head of DC, Emma Douglas.

The government has put a charge cap of 75 basis points in place for DC funds, but Douglas argued that this was ineffective.

Speaking at the PLSA 2019 Investment Conference, she stated: “When you get down to it, you probably have between 10 and 15 basis points to allocate your main default investment.

“So maybe its not going to be possible to hold these illiquids directly and we have to think about how else we hold them.”

Hymans Robertson partner and head of DC consulting, Mark Jaffray said that he believed that the “barrier to investing” was not the charge cap, but the “fee that's being charged to members”.

He continued: “There's no desire to raise the fee to members, so any introduction of new asset classes, new managers, has to be essentially about 'can you get enough scale on the assets you've got to reduce the fees for your current managers', to plug in a new manager or new mandate at a higher fee.”

Douglas did, however, say that she believed that more of the schemes budget would be able to be spent on investment as the industry progresses.

She said: “As administration gets more efficient, I do see the costs going down there, so you potentially have more budget to spend on the investment side of things. But equally fee pressure in market is relentlessly downwards, so I wouldn't be saying there's a lot of extra budget.

“These are just the realities of DC at the moment.

“On the other side of things you do have some perhaps some slightly more interesting ideas coming form the larger owned trust schemes, and often there the administration is being paid by the employer so potentially there's a little bit more investment freedom as you have a little bit more fee budget to play with.”

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