Acknowledging the UK’s stagnant rate of economic growth, with the Bank of England having suggested in the run-up to his ‘mini-budget’ that the UK may already be in recession, Kwarteng said that “to drive growth we need new sources of capital investment”.
“We will accelerate reforms to the pension charge cap, so that it will no longer apply to well-designed performance fees,” he continued.
“This will unlock pension fund investments into UK assets and into innovative, high-growth businesses.” These reforms, he argued, would benefit UK savers and increase growth.
Changes to the charge cap to promote investment in productive finance are a red herring
“We will provide up to £500mn to support new, innovative funds, and attract billions of additional pounds into UK science and technology scale-ups,” he added.
The government’s ‘Growth Plan’, published alongside Kwarteng’s statement, introduced the ‘Long-Term Investment for Technology & Science’ competition.
This would provide up to £500mn “to support new funds designed to catalyze investment from pension schemes and other investors into the UK’s pioneering science and technology businesses,” it said.
‘Tinkering won’t move the dial’
Pension schemes – both defined benefit and defined contribution – have come under increasing pressure from the government to invest in UK assets as part of its leveling-up agenda.
In March, the government launched a consultation focused on encouraging DC schemes to invest in illiquid assets.
It included amendments to the statement of investment principles that would oblige DC schemes with more than £100mn in assets to explain their policies on illiquid investments.
It also proposed updating regulations around employer-related investments to enable master trusts to expand their investment strategies to include private debt and credit.
“I am determined to pursue the path to opening illiquid asset classes to DC schemes,” former pensions minister Guy Opperman said at the time. “I am firmly of the view that all DC schemes should be considering diversifying their portfolio.”
The government has now said that DC charge cap reforms will give schemes “the clarity and flexibility to invest in the UK’s most innovative businesses and productive assets creating opportunities to deliver higher returns for savers”.
It will introduce draft regulations to remove performance fees from the charge cap. The charge cap currently prevents DC schemes from applying annual charges of more than 0.75 per cent on a member’s pot.
Charge cap proposals criticized as govt launches illiquids consultation
The government has said it will “take time to consider” industry concerns around its proposals to exclude performance fees from the charge cap, and has launched a combined consultation into other ways in which to encourage defined contribution schemes to invest in illiquid assets.
Shula PR and Policy managing director Darren Philp was unconvinced by the idea.
“Changes to the charge cap to promote investment in productive finance are a red herring,” he said.
“I’d be surprised if this would make even a marginal difference,” he continued. “Pension schemes will only invest if it’s the right thing to do for their members, and tinkering around the edges won’t move the dial.”