The Pensions Regulator (TPR) has updated its guidance to help defined contribution (DC) schemes comply with new regulations designed to ensure they consider all the investment opportunities available to achieve best value for savers.
According to TPR, trustees must state their investment policy regarding illiquid assets in their scheme’s default arrangement’s investment principles statement effective October 1, 2023.
Trustees must also disclose the asset class breakdown in the chair’s statement for each default arrangement.
Furthermore, recent regulatory updates have eliminated a prior impediment that might have hindered trustees from considering certain funds with performance fees since April 6, 2023. Trustees are now granted the flexibility to exclude specified performance-based fees from the regulatory charge cap limit of 0.75 per cent per annum.
To ensure transparency, schemes are required to include a performance-based fee disclosure in their chair’s statement that is computed as a percentage of the average value of the assets held in each of their default arrangements.
In addition to other costs and charges, trustees must carefully evaluate how much these fees offer their savers a decent value.
TPR interim director of regulatory policy, analysis and advice Louise Davey says: “Trustees have a duty to savers to act in their best interests. That means working hard to deliver the retirement income that savers expect, including properly considering the full range of investment options. Our updated guidance helps trustees make these often-complex decisions.”
Aegon UK chief investment officer Tim Orton says: “Aegon UK welcomes the new regulations that will encourage defined contribution (DC) pension trustees to consider a wider range of investments. This is in line with the growing understanding in the industry that pension funds should focus on value rather than cost. It also creates opportunities for new solutions, such as illiquid assets, to be held as part of a globally diversified portfolio.
“When used effectively, illiquid assets have the potential to improve retirement outcomes for the millions of people who save into DC pension schemes in the UK. However as with any investment decision, trustees will need to be sure that the potential benefits outweigh the risks, and that any allocation is in the best interests of members.
“Investors need stability and predictability in order to make long-term investment decisions. We are therefore concerned about the recent changes to some of the UK’s net zero policies which were announced by the Prime Minister. These changes could damage investor confidence, making it more difficult to attract the investment needed to create a sustainable economy.
“We urge the UK government to remain at the forefront of the global transition to net zero by committing to ambitious policies and not wavering in their implementation. This will help create a stable and predictable environment for investors, which is essential for building a sustainable economy and supporting customer outcomes.”
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