One of the UK’s largest pensions providers has called for a loosening of the pensions charge cap to allow younger savers’ money to be channelled into higher risk areas like venture capital and private equity.
Current rules mean that savers cannot be charged more than 0.75 per cent in annual management fees on their pension investments, which prevents funds flowing into areas like private equity and venture capital where performance fees and management costs typically exceed the cap.
But Phoenix, which has £300bn assets under management, has called for a loosening of the cap for younger savers who may have more of an appetite for risky investments.
Mike Eakins, chief investment officer at Phoenix, told the Financial Times: “We believe that some members who are towards the start of their retirement journey are likely to be in a position to take more investment risk than those who are much closer to retirement age, if it suits their risk profile.”
Phoenix did not specify its recommended level for the cap, but a change would lead to younger savers paying more in management fees on their savings.
Eakins said that the changes could allow younger investors to reap higher returns on their savings.
He added: “Those members might benefit from charges being lifestyled so that they can be invested in a wider array of asset classes than what might typically be available for them to invest in, which have the potential for higher investment returns.”
Government last month closed a consultation on a loosening of the cap to allow more pension funding to be channeled into so-called illiquid assets.
A loosening of the cap has received backing from the UK’s tech sector who have argued that pension funding could be used to fill a significant growth funding gap in the UK.
Ron Kalifa, who masterminded a government-commissioned Kalifa Review of Fintech last year, told City AM last month that pension funds could be channeled into tech businesses via venture capital and help British entrepreneurs grow their business domestically.
He said: “There is around £6tn in the UK pension scheme alone. A small portion of that could be diverted to high growth tech opportunities which would create jobs, help with levelling up and drive international trade.”
The plans also received backing from UK startup network Tech Nation which said it was time for pension funds to throw their weight behind tech.
Ministers have been pushing for a loosening of the cap to unlock the funding to deliver higher returns for savers and allow funding to flow into aras like green infrastructure.
Guy Opperman, pensions minister, told the Financial Times in November: “Such investments have the potential to provide better returns for members as part of a balanced portfolio and help to sustain employment, our communities and the environment.”