New U.K. regulations allow DC plans to increase illiquid investments

The U.K. government on Monday approved new regulations intended to allow U.K. defined contribution plans to increase their illiquid investments by excluding performance fees from the charge cap.

The move to exempt performance fees from the charge cap, or the maximum a plan can pay in fees, is designed to encourage trustees and DC plan managers to explore a fuller range of investments and opportunities in an effort to deliver better long-term investment returns and retirement outcomes, the government said after a consultation with the industry.

Defined contribution plans’ investment fees are capped at 0.75% of assets.

“It’s also important (trustees) look to take advantage of new and innovative investment opportunities in green projects, property, infrastructure and startup businesses that have the potential to deliver longer term positive returns which are key to successful savers’ retirement outcomes,” the government added in a consultation response.

Under the new regulations, which are still subject to an approval from U.K. members of Parliament, DC plan executive will also be required to disclose and explain their policies on illiquid investments and explain better their overall asset allocations.

The government intends that the disclosure will make savers and employers better aware of the investments and justifications for them. At the same time long-term illiquid asset classes can support U.K. growth and its transition to a net-zero economy.

The government said it wants to encourage trustees and managers to accurately reflect on whether their current investment policies and asset allocations align with market changes and whether their current offerings are still in their participants’ best interests.

The government’s intent is also to help plan participants better understand the investments and increase overall engagement with their retirement plans.