On October 6, 2022, the DWP published a
consultation paper, together with draft regulations and draft statutory guidance, on proposals that are intended to facilitate investment by DC schemes in illiquid assets. The consultation period ends on November 10, 2022.
The draft regulations will make changes relating to investment, scheme administration, disclosure of information and charges. The changes include:
- Requiring trustees of relevant DC schemes to disclose their policy on investment in illiquid assets in their default statement of investment principles (SIP). These disclosures will have to be included by the first date on which the default SIP is revised after October 1, 2023, or October 1, 2024, at the latest.
- Obliging trustees of relevant DC schemes to disclose and explain the percentage of assets in their default funds allocated to different asset classes. These disclosures will have to be made in the annual Chair's statement covering the first scheme year ending after October 1, 2023. Trustees will need to have regard to statutory guidance in making asset allocation calculations. (The threshold of over £100 million of assets under management proposed in the earlier consultation has been dropped).
- Permitting trustees to enter investment arrangements that include "well designed" performance fees. The charges cap stands at 0.75 per cent of funds under management, and applies to the default funds of occupational DC pension schemes used for automatic enrolment. A “well-designed” performance fee can be removed from the charges cap to promote illiquid investments in science and technology firms.
From April 6, 2023, the DWP proposes to introduce a definition of "specified performance-based fees" which will not count as "charges" for the purpose of charge cap calculations. Trustees will need to have regard to statutory guidance on whether fees are exempt or not in determining whether performance fees count towards the cap.
