Pension cash could be freed up to fuel the growth of UK start-ups under new plans published by government today to loosen a cap on money management fees.
The Department for Work and Pensions today said it would allow pension scheme trustees to scrap a cap on performance-based fees “where they feel this in their members best interests”.
A charge cap on fees has typically stopped cash from flowing into asset classes like venture capital and private equity, where money managers charge higher fees due to a more ‘hands-on’ style of investment.
Tech industry chiefs have been campaigning for the cap to be scrapped to allow pension money to fill a major growth capital cap in the UK that has hindered the growth of startups.
The changes, which are now under consultation until November 10th November, will apply to Defined Contribution (DC) schemes which manage around £113.5bn, according to data from the Pension Regulator.
Chair of the pensions giant Phoenix Nicholas Lyons – who is currently on secondment from the firm – said last week that the cap was “nonsense” and risked pushing more start-ups overseas in pursuit of funding.
In a ministerial foreword today, the secretary of state for DwP, Chloe Smith, said it was “right” that schemes look at a “broader range of assets as part of a diversified portfolio”.
“This includes in start-up companies, renewable projects and infrastructure that can offer potentially greater returns for pension savers building towards retirement and can have the added benefits of improving the UK economy and society,” she wrote.
The move to encourage more investment into illiquid investment comes after defined benefit schemes were rocked by a liquidity crisis last week as they were hit by collateral calls.
The International Monetary Fund also warned this week that illiquid assets could pose a threat to financial stability due to investors’ inability to quickly meet demand for cash for investors.