Chancellor Rishi Sunak has announced a consultation on reforming the charge cap on DC workplace pensions in today’s Budget.
This charge cap is currently set at 0.75 per cent. In his budget speech he said reform of this charge cap would be part of a series of measures designed to unlock institutional capital and encourage greater investment in infrastructure and green projects, helping to make the UK a “science and technology superpower”.
However some pensions experts pointed out that many DC workplace pension currently charge far less than this cap, and competitive pressures may still restrict investments into these higher charging, but potentially higher returns asset classes.
LCP partner and former pension minister Steve Webb says: “Relaxing pension charge cap to encourage illiquid investments is really missing the point — most schemes are well below the charge cap and barriers to investment are not primarily about charges.”
This was a point made by the Department of Work and Pensions at the recent Corporate Adviser Summit.
However the decision to consult on this issue was welcomed by the industry. Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says: “We welcome the consultation on reform of the DC charge cap announced in today’s Budget.
“While introduced to safeguard value for scheme members we know that cost is only one determinant of value. There will be appetite to invest in more illiquid assets, especially if it aligns with people’s values of a greener future and this would prove difficult with the charge cap in its current form. We await the full detail, but it will be interesting to see if this may also read across to charges on drawdown investment pathways.”
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