The Department for Work and Pensions (DWP) has launched a consultation to improve saver outcomes and promote investment in green technology and infrastructure.
The consultation, published today, puts forward measures to encourage pension schemes to invest in a more diverse range of long-term assets, including illiquid products such as venture capital and green infrastructure.
Additional steps to encourage the consolidation of smaller pension schemes into larger schemes were also included in the consultation.
The seven-week consultation was published along today alongside the government's response to its February 2019 consultation on Investment Innovation and Future Consolidation.
The consultation period begins today (11 September 2020) and runs until 30 October 2020.
In particular, the consultation looks to address industry concerns over how the measurement of performance fees and the charge cap might limit the ability of auto-enrolment schemes to access less liquid investment classes, such as venture capital, for their members.
As such, the DWP is consulting on a proposed legislative change to the way compliance with the charge cap is measured for performance fees to give trustees greater flexibility in these investment decisions.
It is also consulting on changes to legislation and some new statutory guidance to support and accelerate the process of consolidation in the defined contribution market, and to extend access to a more diverse range of investment classes.
The DWP said these proposals will require trustees of smaller schemes to assess key elements of the value achieved by their scheme and to report on the outcome of that assessment. Where this assessment shows that members would achieve better value in a larger scheme they will be expected to initiate wind up and consolidate.
Minister for pensions and financial inclusion Guy Opperman commented: "We want all pensions scheme members to benefit from efficient administration, first class investment governance, and access to diversified investment strategies.
"The UK has a world-class occupational pension system. We want to encourage scale and innovation by pension schemes, and help drive new investment in important sectors of the economy as we build back better.
"The UK is committed to leading the way in the provision of green technology and infrastructure, and we want pension funds to be at the forefront of taking advantage of these long-term opportunities."
Opperman first suggested a consultation was on the way in March. Speaking at the Pensions and Lifetime Savings Association's investment conference in Edinburgh, he said improved scale and choice would drive better returns across the industry.
The Pensions Regulator (TPR) welcomed the proposals. TPR executive director of regulatory policy, analysis and advice David Fairs said: "The proposals call on schemes with assets under £100m to carry out a more rigorous annual assessment of their value for members. If those schemes cannot demonstrate they offer good value, they will have to tell us whether they plan to improve or consolidate.
"This is in line with our aim to cut the number of poorly run schemes in the market so every saver benefits from being in a pension scheme with excellent standards of governance and which delivers good value."
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