Beginning October 1, trustees of defined contribution plans in the U.K. will be required to disclose their plan’s policy on investing in illiquid assets.
Trustees will have to include the policy in the statement of investment principles for the plan’s default arrangements. The default statement of investment principles outlines the plan’s investment strategy, including investment objectives and policies, for a plan’s default arrangements. Trustees will also be required to disclose the asset class breakdown for each of their plan’s default arrangements in the chair’s statement.
The policy statement on illiquid investments applies to all trust-based occupational defined contribution pension plans with more than one member, unless it is an executive pension plan or a relevant small plan or falls within another of the exemptions in the Occupational Pension Schemes (Scheme Administration) Regulations of 1996.
Under the new requirements, trustees must review both the default strategy and the performance of the default arrangement at least every three years. Trustees must also do so after any significant change in investment policy or change in the demographic profile of the members invested in the default strategy or their beneficiaries.
If a default arrangement’s policy is to not invest in illiquid assets, the default statement of investment principles must explain why and whether there are any plans to invest in illiquid assets in the future. However, if the policy is for a default arrangement to invest in illiquid assets, the default statement of investment principles must for that default arrangement describe the following:
- The age profile of the members for whom investments will be held in illiquid assets;
- Whether the investments made in illiquid assets will be made directly in illiquid assets or via a collective investment plan;
- The types of illiquid investments that will be held;
- Why the policy is to invest in illiquid assets—including the advantages over other classes of assets; and
- Whether there are plans to increase investment in illiquid assets in the future.
Meanwhile, the annual chair’s statement must disclose for each of the plan’s default arrangements the percentage of relevant assets allocated to cash, corporate bonds, U.K. government bonds, foreign government bonds, listed equity, private equity, infrastructure that provides or supports public services, private debt/credit (excluding debt investments included under bonds) and “other” assets.
U.K. workplace pension watchdog The Pensions Regulator recently updated its guidance to help U.K.-based defined contribution plans comply with new rules.
“Trustees have a duty to savers to act in their best interests,” Louise Davey, TPR’s interim director of regulatory policy, analysis and advice, said in a release. “That means working hard to deliver the retirement income that savers expect, including properly considering the full range of investment options. Our updated guidance helps trustees make these often-complex decisions.”
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