This update covers the legal position in England and Wales.


On 30 March the Government published the consultation document Facilitating investment in illiquid assets. 

This comprises two Government responses to previous consultations and two new consultations, all related to investment by DC schemes.  We take a look at these in more detail below.

Response to consultation on exempting performance-based fees from the charge cap

The Government says there was a mixed response to its proposal to exempt "well-designed" performance fees from the charge cap which applies to the default funds of occupational DC pension schemes used for auto-enrolment. Some respondents were not convinced that such a change would incentivise schemes to change their approach to investing in illiquid assets.  Organisations representing consumer groups were concerned about diluting the charge cap.  The Government says it will explore how the concerns raised might be addressed and will consult again on principles-based draft guidance alongside any proposed consultation on draft regulations.

Consultation on "Disclose and Explain" proposals re illiquid investments

The consultation proposes to amend the regulations governing scheme investments so that:

  • trustees of DC schemes (including "hybrid" schemes with a DC section) will be required to disclose in their statement of investment principles (SIP) their policy on investment in illiquid assets.  The disclosure requirement will apply to schemes' default arrangements only. The consultation puts forward two possible options for the definition of "illiquid assets".  The Government prefers an option that would require schemes to "look through" funds to understand the asset allocation within the fund.  The Government envisages that the average illiquid policy statement will be at least one paragraph and a maximum of three.  The consultation includes a list of points which the Government wants to be covered in the statement, eg whether "lifestyling" options means that the proportion of illiquid assets held in respect of a member will reduce as the member approaches retirement age.;
  • trustees of DC schemes with over £100 million in total assets will be required to publicly disclose and explain their default asset class allocation in their annual chair's statement.  The asset classes are cash, bonds, listed equities, private equity, property, infrastructure and private debt.  The Government proposes that trustees use an average asset allocation based on four valuation points three months apart.  

Response to call for evidence on greater DC consolidation

The Government has published its response to its call for evidence on the case for greater consolidation in the DC pensions market.  There was a mixed response to this consultation with some respondents suggesting that the Government should wait to see the impact of value for member assessment requirements before making further changes in this area.  The Government has decided not to introduce any new requirements in 2022 which have the sole purpose of consolidating the DC market.

Consultation on change to law on employer-related investments by authorised master trusts

The Government is consulting on draft regulations to amend the restrictions on employer-related investments (ERI) in relation to authorised master trusts with 500 or more participating employers.  Currently master trusts are subject to the same ERI restrictions as other multi-employer schemes.  However, in practice employers participating in master trusts are generally at arm's length from the persons making investment decisions in relation to the scheme.  For in scope master trusts the Government proposes to alter the requirements with effect from 1 October 2022 so that the restrictions on ERI will only apply to investments relating to the "scheme funder" and the "scheme strategist" and persons connected to or associated with them.  It proposes that no more than 5% of scheme assets must be invested in ERI under the new definition.

Key Contacts

Rachel Rawnsley

Rachel Rawnsley

Partner, Head of Pensions
United Kingdom

View profile
Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

View profile
Catherine McAllister

Catherine McAllister

Partner, Pensions
United Kingdom

View profile
Rachel Uttley

Rachel Uttley

Partner, Pensions
United Kingdom

View profile