The Department for Work and Pensions (DWP) has launched a consultation to encourage defined contribution (DC) pension schemes to consider a wider range of investments, including green energy.
The government proposed that DC schemes extend their investments in long-term liquid and illiquid assets.
Following HM Treasury’s Patient Capital Review, the DWP’s report encourages the investment of £60 billion of DC pension funds into illiquid assets including green energy and UK infrastructure.
The DWP said: ‘We anticipate the FCA’s proposed changes to permitted links rules will facilitate more investment products blending liquid and illiquid assets to come to the market.
‘Our engagement with larger DC pension schemes to date suggests the government may also be able to take further action to increase the appetite for investment in illiquid assets, and to make it easier for schemes to invest.’
Assets in occupational DC schemes have more than doubled in the four years to 2018 and are expected to accelerate further when minimum contributions are increased in April 2019. ‘By opening up pension schemes’ strategies and investments, transparency measures also offer the potential to foster increased engagement by members with their pension savings,’ the report added.
The report also proposes that larger schemes (those with 5,000 or more members) report their policy on these types of investments annually and for smaller schemes to assess every three years whether they should consolidate into a larger scheme.
With this change, average annual charges are also being considered, although investments can be made within the existing charge cap.
The report read: ‘We know average annual charges for pension schemes that are subject to the charge cap are between 0.38% and 0.54% of funds under management depending on the type of scheme.
‘It is therefore clear trustees have scope, within the existing level of the cap at 0.75%, to consider innovative investment opportunities that may attract higher charges, should they wish to. It may however be the case that the way compliance with the charge cap is currently determined does restrict trustees’ options.’
Speaking at the Trades Union Congress conference today, minister for pensions and financial inclusion Guy Opperman (pictured above) said: ‘Pension schemes could consider opportunities for more innovative, long-term investment offering members the potential for better returns – and the UK economy billions of pounds of funding that can boost jobs, productivity and growth.
‘We can do more to attract new investment into important sectors of the economy, which would boost employment and help to build stronger, more sustainable communities. At the same time, this approach would give savers more pride in their pensions while delivering good returns.’
The consultation will close on 1 April 2019.