The government has rejected a call from a state-owned business bank and the investment industry to dilute UK workplace pension protections so savers can invest in riskier and more expensive venture capital.
The Department for Work and Pensions told the Financial Times it would not be reforming the current 0.75 per cent cap on annual charges on retirement funds as recommended by the British Business Bank, a Treasury-backed bank that helps finance new and growth businesses.
“We have seen no compelling evidence that any additional changes to the charge cap are needed to allow investment in venture capital or growth equity,” it said.
Millions of workers automatically enrolled into company pensions in the UK are currently shielded from excessive fees by the cap on annual charges on their retirement funds.
Pension schemes are permitted to invest in venture capital or growth equity schemes but largely avoid them due to concerns that the variable and high performance fees associated with this type of investment would breach the charge cap.
Last week the BBB argued there was a strong case for the cap to be adjusted to open up investment in venture capital by pension schemes managing tens of billions of retirement cash.
Analysis for the bank found that a 22-year-old starting a workplace pension could boost their retirement pot up to 12 per cent by the time they retired by investing in high-growth, innovative businesses backed by venture and growth capital.
The BBB did not respond to a request for comment on the government’s rejection of the proposal.
However, in a report published this month, the BBB also recommended that venture capital managers reform their fee arrangements so they were more attractive to so-called defined contribution workplace pension schemes, which have more than 10m savers.
“The British Business Bank’s report noted the commonly held industry view that the pension charge cap would delay DCs access to top-performing managers, many of which are already oversubscribed,” said Stephen Welton, founder and chief executive of the British Growth Fund, which invests in growing companies.
“However, I would agree with the BBB’s expectation that there needs to be some pivoting of fee structures over time as more managers turn their attention toward the DC pension funds.”
The DWP believes there is scope for trustees to consider more innovative investment opportunities for their members, and has proposed a new method for performance fees to be assessed for charge cap purposes.
