Government plan to loosen pension charge cap to unleash investment super power of pensions

Photo of Stephen Cameron, Aegon Pensions Director
Photo of Stephen Cameron, Aegon Pensions Director

Steven Cameron, Pensions Director at Aegon comments:

“The Budget announcement that there will be a consultation on workplace pension charge cap is a further signal of how determined the Government is to break down barriers stopping workplace pensions investing more of their billions of funds in illiquid investments including infrastructure and productive finance. It’s great that pensions are now recognised across Government as an investment ‘super power’ which can support economic recovery. A wider range of investments could also improve returns to workplace pension members.

“Illiquid investments can have higher charges and some are subject to performance fees which can’t be known in advance and could lead to investment charges exceeding the maximum charge for workplace pension default funds of 0.75%. The Government wants to remove this barrier. A small increase in charges in return for a bigger increase in investment returns is of course a good thing.

“But this is not the only barrier discouraging pension schemes to invest in illiquids. And with many having charges well below the 0.75% cap, could be a red herring. An important challenge when implementing these changes will be to avoid raising concerns amongst workplace pensions members that they may be subject to higher charges. Raising such concerns to allow different investment strategies would be the tail wagging the dog.”

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