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UK fee cap review could make pension access to PE easier

·1 min read

The UK's finance minister, Rishi Sunak, has confirmed plans to review a fee charge cap of 0.75% on employees' defined contribution pension schemes, potentially freeing them up to commit more capital to long-term assets such as private equity and venture capital.

The plan was included in the government's Autumn Budget and Spending Review revealed Wednesday; it is part of a "leveling up" agenda aimed at encouraging investment in innovation. A change in rules that would makes it easier for UK pensions to invest in private markets was among several proposals put forward by the British Venture Capital Association ahead of the budget. 

Outlining the plans, the report said the government added that it was looking at options to better accommodate performance fees and it would continue wider policy work to remove various barriers to illiquid investment."

Currently the UK's pension industry is one of the world's largest, sitting on around $3.6 trillion in assets, yet it still contributes relatively little to the country's PE and VC ecosystems.

The current limitations on DC pension plans, which imposed the 0.75% limit on annual management fees, were introduced in 2016. They were intended to protect workplace pensions, in which employees are automatically enrolled, from paying the kind of high fees typically associated with long-term assets like private equity.

Last month, the Productive Finance Working Group—a panel co-chaired by the Bank of England, the UK's Treasury and financial regulators—made several recommendations to the government, including lifting barriers preventing pensions from investing more in illiquid assets.

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