Illiquid assets could bring cost burden

A large part of the UK pensions industry has said that, although well-intentioned, the DWP’s proposals could fail to achieve its objective while adding to scheme costs.

Under the DWP proposals, the trustees of larger DC funds would have to state their policy on investment in illiquid assets and disclose their holdings on a quarterly basis.

Information would need to be included in a scheme’s statement of investment principles and in the annual chair’s statement.

Consultancy LCP has raised objections to these proposals. The firm has stated that the information would be included in documents that are rarely read by scheme members and that it is therefore highly unlikely that they would lead to members becoming more engaged with scheme investment strategy, as the consultation suggests.

There would also be a cost to gathering this data, especially on a quarterly basis, which would ultimately add to the costs of running a scheme, to the potential detriment of members.

Consultancy Isio has also expressed concerns on the ever-growing governance burden that trustees face.

The Association of Consulting Actuaries (ACA), which also responded to DWP’s consultation, has recognised the benefits that investing in illiquid assets may bring to members, but said it is not convinced the proposals to incorporate statements in often ignored compliance documents will facilitate their adoption.

The ACA said instead that it would be open to the disclosures being required to cover self-select funds rather than focusing on default arrangements. It can be easier to introduce illiquid assets as part of a self-select range – there being fewer constraints on charges – and trustees being prompted to consider this may allow confidence to be built on such options in advance of future incorporation in a default arrangement.

Venilia Amorim, Editor, IPE.com
venilia.amorim@ipe.com