Reforms to pension charge cap ‘not silver bullet’ for boosting investment

Plans to the remove “well-designed performance fees” from the pensions regulatory charge cap were included by chancellor Kwasi Kwarteng in his economic growth plan (42 pages / 1.35MB PDF). The announcement will ensure that savers “benefit from higher potential investment returns while providing clarity for institutional investors”, the government said.

Carolyn Saunders of Pinsent Masons said: "The government has long seen removing the cap on performance fees as the key to unlocking defined contribution scheme investment in productive finance. While this may help some schemes, there are many other factors that can discourage schemes from investing in this way, so this alone is unlikely to be the silver bullet.”

“However, the chancellor’s reference to this being available in the case of ‘well-designed performance fees’ is perhaps intended to acknowledge some of the other factors that can discourage schemes, and which have been raised by the industry. The detail of what is intended here is what will really hold the key to whether this move unlocks investment in the way that the government hopes,” she added.

Kwarteng also announced plans to introduce the ‘Long-Term Investment for Technology & Science’ (LIFTS) competition, providing around £500 million of support to new funds that target investment from pensions and other schemes into the UK’s science and technology industry. He said the competition would “unlock billions of pounds of additional investment into UK scale-ups over time.”

Saunders said: “Encouraging pension schemes to invest in funds supporting science and technology could help to accelerate the development of new products and solutions to combat climate change. Assuming the funds are sufficiently robust and appropriately designed, pension schemes should find these climate change opportunities attractive, not least because the stories attached to them will play out well with members.”

The government said that it will launch a call for LIFTS proposals by the end of the year after a short period of industry engagement led by the British Business Bank. It hopes to identify promising fund structures and vehicles “as soon as possible”, so that the funds go live next year.