UK pension funds have expressed concern that the chancellor’s Mansion House reforms could result in higher costs for investors.
Back in July, Jeremy Hunt supported an agreement between nine of the UK’s largest defined contribution pension providers. The deal committed them to allocating five per cent of their assets in their default funds to unlisted equities by 2030.
These providers represented over £400bn in assets and the majority of the UK’s defined contribution workplace pensions market.
Defined contribution pension funds typically invest only 0.5 per cent of their assets in unlisted UK companies. The government said the deal could unlock up to £50bn of investment in high-growth companies if all UK pension schemes were to follow suit.
However, one of the UK’s largest pension providers, Aviva, told the Financial Times that one important issue was how to introduce unlisted assets to existing default funds.
“This is a problem because it is really hard once you have got someone set up with a scheme to then increase charges,” the head of workplace pension savings at Aviva, Emma Douglas, told the FT.
Douglas’s concern was echoed by Laura Myers, a partner with actuarial consultants Lane, Clark & Peacock.
“The concerns we are hearing [from pension funds] are that if we put this illiquid asset in our default strategy, our default will be more expensive for members,” she told the FT.
Myers added that pension funds were concerned that if they were one of the first to go ahead with illiquid assets, they could potentially not win business.