DWP broadening the investment opportunities of defined contribution (DC) pension schemes - Which? response

Summary

Which? welcomes DWP’s consultation on broadening the investment opportunities for pension schemes. We welcome the Government’s focus on ensuring that defined contribution (DC) and collective money purchase (CMP) schemes consider how to best deliver long-term returns for their members by investing in a diverse range of assets, including illiquid investments.

We support the Government’s proposal to require all schemes to publicly disclose their asset allocation information. Greater industry-wide transparency and the improved availability of investment information could help drive better outcomes for pension savers, both through greater public accountability on the investment decisions made by trustees on behalf of their members, and increased pressures within industry to offer savers value for money.

We do not support DWP’s proposal to enable trustees of DC and CMP schemes to exempt performance-based fees from their charge cap calculations. There is not enough evidence to support removing performance fees from the charge cap. We agree with many industry stakeholders that there is sufficient headroom within the existing cap to support diverse investments, with many pension schemes already including illiquid investments in their default strategies. Further to this, we are concerned that allowing trustees to carve out performance fees from the cap could increase the overall level of charges that members must pay on their retirement savings. We believe the Government could work towards its policy aim in other ways, outside of the charges structure.

The charge cap can, and should, fall gradually over time as schemes gain economies of scale. International evidence from countries with more mature DC pension industries suggests that costs and charges have fallen over time, highlighting the benefits economies of scale are likely to have in reducing the level of charges that scheme members must pay on their retirement savings.