New content for SIPs and Chair Statements
The DWP has published a consultation on broadening the investment opportunities of DC pension schemes. The consultation includes the Government’s response to chapter 2 of its ‘Facilitating Investment in Illiquid Assets’ consultation and seeks views on draft regulations and guidance on the exemption of performance-based fees from the regulatory charge cap proposals and the introduction of new disclosure requirements.
What you need to know
Following the Treasury’s Patient Capital Review of November 2017, the Government has been keen to find ways to facilitate greater diversification in investment by UK institutional investors – particularly pension schemes. DWP consulted in February 2019 and March 2022 on proposals to facilitate investment by defined contribution (DC) schemes in less liquid assets.
DWP is now moving forward with proposals for relevant schemes[1] to report their policies on illiquid investment in their Default Statement of Investment Principles (SIP) and to publicly disclose their default asset allocations in their annual Chair’s Statement. DWP also proposes Collective Money Purchase schemes (CMP) schemes report their policies on illiquid investment in the main SIP, as they don’t produce a Default SIP. DWP is not requiring trustees or investment managers to change their asset allocation as a result of new regulatory requirements.
Final regulations are to be published by Spring 2023.
The charge cap proposals would be effective immediately (probably 6 April 2023).
The new asset allocation disclosure requirements in the chair’s statement would apply for the first scheme year which ends after 1 October 2023.
The new illiquid investment policy disclosures will be required to be added to the first Default SIP after 1 October 2023 and at the latest by 1 October 2024.
Following earlier consultations, DWP proposes the following definition of ‘illiquid assets’: “assets which cannot easily or quickly be sold or exchanged for cash and, where assets are invested in a collective investment scheme, includes any such assets held by the collective investment scheme”.
[1] A relevant scheme is an occupational pension scheme which provides money purchase benefits or collective money purchase benefits (excluding money purchase benefits solely related to Additional Voluntary Contribution (AVC) arrangements), which is not a scheme with only one member, a relevant small scheme or an executive pension scheme.
