The proposals include new investment policy reporting requirements for large schemes, and requiring smaller schemes to regularly consider whether to consolidate in order to access a wider range of investments. The government is also seeking views on whether the structure of the 0.75% defined contribution (DC) charge cap restricts schemes' ability to invest in illiquid assets on which performance fees are charged.
Pensions minister Guy Opperman said that the current rules may be discouraging long-term investment by schemes in the likes of start-up companies, housing and green energy projects.
Assets held by occupational DC pension schemes have almost tripled to £60 billion since the start of 2011, driven in part by the introduction of automatic enrolment into workplace pensions.
Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said that DC members "are often said to miss out on the so-called illiquidity premium which comes from being invested for the long term".
"The Pensions Regulator has already paved the way for greater use of illiquid assets such as direct property investment and infrastructure," he said.
"This consultation takes things a step further. In particular, it proposes that we build on existing public disclosure requirements – and add the trustees' policy on illiquid assets to the many other things which now need to be shared with the world at large. The government is also proposing an extension of the charge cap to ensure it is not a barrier to the use of illiquid assets," he said.
"Whatever the case, these measures are likely to achieve what appears to be the underlying objective - being to encourage greater levels of DC/pensions investment in things like infrastructure," he said.
The consultation closes on 1 April 2019. It proposes requiring large DC schemes to include a section on their illiquid investment policy in the statement of investing principles (SIP) they will be required to publish from later this year, and to then report annually on how they had followed that policy as part of the implementation statement. Schemes would be required to include a percentage allocation to "avoid statements being general or generic" and to allow for greater understanding, and possible action to address, the barriers to this type of investment by particular schemes.
The government is not proposing changes to the level of the 0.75% cap on member-borne management charges on default funds in DC schemes. Rather, it is seeking views on how best to "accommodate" variable performance fees within the cap, by proposing an additional method of assessment. The government's view is that there is scope for schemes to diversify within the cap, citing average annual charges of between 0.38% and 0.54% of funds under management. It is keen to understand whether this is in fact the case.
The new requirements would apply to schemes above either a membership or asset-based threshold, and the government is seeking views on which would be "more proportionate and effective". As a guide, it has proposed a 5,000 or 20,000 member threshold, or a £250 million or £1 billion asset threshold.
The consultation also proposes a new requirement for smaller schemes to actively consider consolidating into a smaller scheme at least once every three years, if not annually as part of the chair's assessment of the value the scheme provides to members. Consolidation has the potential to "improve governance and enable more pension schemes to reach the critical mass needed to access a broader range of investments", it said.
Barton said that questions of scale and consolidation were becoming a common theme in UK pensions policy. "Indeed, for a consultation on investments, there's an awful lot of word count devoted to the subject of consolidation," he said.
"In particular, there's a proposal that chair's statements should include an assessment of whether it might be in a member's interests to be transferred elsewhere - i.e., to a master trust. In truly circular fashion, the additional reporting and other requirements noted in the consultation may have a prominent role to play in that assessment," he said.