27 October 2021
Today the Chancellor confirmed that a consultation to end the 0.75 per cent ceiling on annual management fees on DC schemes is to be launched. The driver of the plan is the ‘levelling-up’ agenda with the Chancellor hoping that relaxing charges on management fees will encourage more DC schemes to invest in illiquid assets such as infrastructure and renewable energy.
However, LCP has seen much greater focus on other concerns, in discussions with their clients, about investing in these assets which need to be addressed before more schemes will consider investing:
- Focusing on low charges in an already competitive market, already well below the charge cap. There are lessons to be learned from Australia's approach to emphasis on value rather than cost
- By their very nature, illiquid assets are not valued on a daily basis so there are questions around what approach to use to make the allocation fair for all members
- Lack of transparency in fees for illiquid assets and private markets along with potentially use of performance related fees
- Greater level of guidance needed from regulators to support trustees adding in complex structures and assets
Laura Myers Head of DC at LCP, said: “While the impulse comes from the right place, a plan to scrap the charge cap misses the point. There are a whole host of other concerns leading to industry reticence to invest in these assets, not least around issues regarding fairness for members and the opaque nature of illiquid assets. There is also the reality that many DC schemes invest via insurers who don't accept many illiquid assets so this won't be changed by the magic bullet of charge cap changes. It's a missed opportunity to address perceived barriers and some industry nervousness.”