Broadening the investment opportunities of defined contribution pension schemes

This consultation outcome as regards statutory guidance with respect to below noted obligations of defined contribution pension schemes (DCPS) was published by the Department of Work and Pensions (DWP) on January 30, 2023. It follows the finalization of a new draft statutory instrument in this context which is currently under legislative scrutiny.
Specifically, last year, the DWP sought feedback on a proposal to allow defined contribution pension schemes (DCPS) to invest in illiquid assets such as infrastructure bonds or bonds in relation to renewable projects, to require DCPS to „state their policy on illiquid investment and to disclose their asset allocations“ in this context, and to exempt performance-based fees from the charge cap calculations (maximum fees that may be charged to scheme members) when this would hinder investments of DCPS that are in the best interest of scheme members.
After positive feedback on such proposals, the DWP launched an additional consultation on the above noted corresponding statutory instrument and corresponding statutory guidance to help firms with their compliance with the new disclosure requirements and to assist them in determining the performance fees that may be exempt from the charge cap calculation as noted above.
This consultation outcome now publishes the feedback the Department has received to its proposed statutory guidance and sets out the finalized version as it will apply once the new requirements come into force.
The new guidance, among other things,
– explains the scope of the above noted disclosure requirements;
– describes the different types of assets (asset classes) that must be taken into account when disclosing investments in assets;
– explains the look-through approach trustees shall take to determine which types of assets must be disclosed (e.g. in the case of fund-of-fund structures);
– stipulates the applicable reporting period;
– clarifies the definition of performance-based fees for purposes of the exemption from the charge cap (0.75%);
– sets out the conditions performance-based fees must fulfill to be eligible for the exemption; and
– explains how the performance-based fees should be measured and paid – in the end to ensure fairness to investors.
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As the summary above only briefly describes the key content of the guidance, please refer to the original document for more detailed, comprehensive information.
Along with the consultation outcome, the DWP also has published a corresponding impact assessment.