DWP looks at ‘nudging’ consolidation of smaller DC schemes

Kim Kaveh reports...

The Department for Work and Pensions (DWP) has published a consultation, putting forward a range of proposals that aim to expand defined contribution (DC) investment opportunities.

The consultation document includes proposals that would require larger DC schemes to document and publish their policy in relation to investment and illiquid assets, and report annually on their approximate percentage allocation to this kind of investment.

It also set out proposals to offer an additional method of assessment for compliance with the charge cap in a bid to help schemes invested in assets with performance fees.

The DWP said: “It may be the case that the way compliance with the charge cap is currently determined does restrict trustees’ options.”

In addition, the DWP questioned if some or all smaller DC schemes, those with fewer than 1,000 members or less than £10m in assets, should conduct a triennial assessment of whether their members’ may receive better value if the scheme consolidated into a larger scheme with more scale – asking whether government should “encourage or nudge” smaller DC schemes to consolidate.

Speaking at the Trades Union Congress (TUC) annual pensions conference this morning, pensions minister Guy Opperman (pictured) said: “I am not going to be telling pension schemes how to invest. I believe that we are opening doors.

“We can do more to attract new investment in important sectors of the economy. At the same time, this approach will give savers more pride in their pensions while delivering good returns.”

He added: “I want this to be the start of a new phase of DC pensions.”

In his introduction to the consultation, Opperman added there is “more we can do to stimulate trustees’ appetite for a wider range of investment opportunities”.

He said: “That is why I am proposing that larger DC pension schemes should be required to set out their policy and current practice in relation to illiquid investments.”

Opperman added: “I believe the proposals in this consultation can facilitate long-term investment by pension schemes both in the UK economy and elsewhere, by raising productivity, boosting economic growth, delivering good work and building stronger and more sustainable communities.”

The DWP’s consultation will run until 1 April 2019.

The consultation comes after the Financial Conduct Authority announced it was seeking views on how to remove barriers to investing in assets such as infrastructure, real estate, private equity and debt, and venture capital. This consultation remains open until 28 February 2019.

It also follows The Treasury’s Patient Capital Review, which considered how to increase the supply of capital to growing innovative firms.