Reforming the DC Charge cap – our response to the DWP consultation

Simmons & Simmons has today submitted its response to the Department for Work and Pensions (DWP) consultation on reforms to the charge cap for Defined Contribution (DC) pension schemes.

Our summary of the consultation (published in November 2021) can be found here.

In our response, which can be found here, we make the following key points:

• we support the DWP’s proposal to remove performance-based fees from the charge cap – we believe that this will enable DC scheme trustees to deliver better retirement outcomes for their members.
• long-term, less liquid assets can offer higher, less volatile long-term returns for investors and we support the removal of structural barriers that prevent DC pension scheme trustees from investing in such assets where they feel it is in their members’ interests (and therefore consistent with their fiduciary duties) to do so.
• performance fees should be looked at in terms of the end result for the investor –
  • while alternative investment fee structures can be higher than those for more traditional assets, they often offer better real returns (net of fees) than equities and other more “traditional” investments.
  • unlike a single flat management fee (which is paid regardless of the fund’s returns), a performance-based fee element means that success fees are only payable when a real return is delivered – this helps align the interests of investors and asset managers.
• it is important, though, that increasing the flexibility for DC schemes to invest should not come at the price of member protection.

In addition, our response sets out why we believe that:

• the exemption for performance fees should apply broadly and not be limited to specific assets or investment strategies;
• DWP guidance should be principles-based and should build on existing practices;
• transparency and disclosure requirements should be meaningful and proportionate; and
• any legislative changes to implement the exemption should be introduced as a standalone provision to avoid the risk of unintended consequences on existing structures.

Simmons’ work on Productive Finance

The response to the DWP consultation is part of our ongoing work on productive finance, supporting the development of a suitable regime which enables much broader access to long-term and productive capital vehicles in the UK.

We are proud to be the only law firm represented on the Bank of England / HMT / FCA Productive Finance Working Group (the Productive Finance WG), which has been central to the development of the recently introduced Long-Term Asset Fund (LTAF).

Our work over the past 12 months has included detailed submissions to a number of significant consultations.

Click on the links below for summaries of our responses to:

• HMT’s call for input, 'Review of the UK funds regime'
• HMT’s consultation, 'The Tax Treatment of Asset Holding Companies in Alternative Fund Structures'
• FCA’s LTAF consultation, CP21/12, 'A new authorised fund regime for investing in long term assets'

See here for our summary of the Productive Finance WG’s ‘Roadmap for Increasing Productive Finance Investment’.