Autumn Budget 2021: Concerns raised over potential moves to raise the 0.75% charging cap on pensions

MSE_Emily

The Government said it is to consult on possible changes to the 0.75% cap on pension fund charges, potentially raising the ceiling so that the funds can be used to invest in more expensive projects, such as renewable energy...

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Autumn Budget 2021: Concerns raised over potential moves to raise the 0.75% charging cap on pensions

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Thrugelmir

Unfortunately more complex investments are costlier to manage. Should be available to those who invest outside of SIPP wrappers. Only going to part of their overall portfolio in any event. 

NedS

Of the renewables funds I hold, fees are in the 1.03% to 2.74% range (the 2.74% may be an outlier as the rest are all under 1.5%). Realistically, increasing to 1% would probably make no difference, and an increase to 1.5% would probably be required. I have no issue with raising the cap for renewables funds only, and leaving the cap of 0.75% for everything else if they want to attract massively more investment into renewables. However, as current share offers are already typically over-subscribed, is there a sufficiently large pipeline of investment opportunities to warrant additional funds? Already some investment managers are saying they are not prepared to bid on some projects at current prices as they do not consider they represent value for money or offer a sustainable return.

Or one could argue by leaving the cap at 0.75% might encourage renewables funds to become more efficient and reduce their management costs as they begin to scale (not holding my breath)

Thrugelmir

NedS said:

However, as current share offers are already typically over-subscribed, is there a sufficiently large pipeline of investment opportunities to warrant additional funds? 

The amount of money required to transition to a new greener economy is mind boggling. Pension schemes are probably better equipped to evaluate individual opportunties than many retail investors. 

NedS

Thrugelmir said:

NedS said:

However, as current share offers are already typically over-subscribed, is there a sufficiently large pipeline of investment opportunities to warrant additional funds? 

The amount of money required to transition to a new greener economy is mind boggling. Pension schemes are probably better equipped to evaluate individual opportunties than many retail investors. 

I think you miss my point? Having all the funds (cash available) in the world doesn't help if you can only build 20 wind turbines a year. If the pipeline of projects doesn't exist, raising the cap will just mean there is potentially more money chasing after the same number of projects which does little more that drive up prices. But I take your point, the overall investment required for the transition to green energy will be huge.

Pension funds are not going to fund R&D to develop better solar panels, or wind turbines or battery storage technology. They want to purchase up and running assets that are delivering a 10% ROI so they can pass on a 6% yield to investors after skimming off their 2% in fees.

jamesd

The story is somewhat wrong because there isn't a 0.75% cap on pension charges. There is a 0.75% cap on the charge when using the default fund of an auto-enrollment scheme. Anyone who wants something else, like a green investment, can just go in and change where their money is going, if the investment they want is one of the few to hundreds or thousands offered in their workplace scheme.

What increasing the cap would do is increase the scope for pension scheme administrators to choose a higher priced fund that isn't improving the benefits to their members, but meets whatever objective they might call green in their opinion, while relying on inertia to keep members using it.

In view of the "soft" manipulation potential I think this should only be done if there's a clear and trivially easy way to go back to a more normal default fund wit the original cap. Ideally also a prohibition on religion-based conditions for such investments (alcohol, lending money etc.) so people don't end up in a discriminatory default fund, the green relevance being that the NS&I green account and green bonds impose these tests on all of the investments they make so if you don't fit the religious criteria you don't get the money.

MK62

The real issue is that the higher cap might well become the norm for these "default" funds, unless safeguards are put in place.

As ever the devil is in the detail, so as this is only at the consultation stage, we'll have to reserve judgement on this I think.

The whole "default" fund issue needs tighter regulation though tbh......

Thrugelmir

NedS said:

Thrugelmir said:

NedS said:

However, as current share offers are already typically over-subscribed, is there a sufficiently large pipeline of investment opportunities to warrant additional funds? 

The amount of money required to transition to a new greener economy is mind boggling. Pension schemes are probably better equipped to evaluate individual opportunties than many retail investors. 

I think you miss my point? Having all the funds (cash available) in the world doesn't help if you can only build 20 wind turbines a year. If the pipeline of projects doesn't exist, raising the cap will just mean there is potentially more money chasing after the same number of projects which does little more that drive up prices. But I take your point, the overall investment required for the transition to green energy will be huge.

Pension funds are not going to fund R&D to develop better solar panels, or wind turbines or battery storage technology. They want to purchase up and running assets that are delivering a 10% ROI so they can pass on a 6% yield to investors after skimming off their 2% in fees.

Simply approaching matters from a different perspective. If there's a pool of capital available then more projects will come to fruition and on a greater scale. With scale comes economy and a lower fee %.  When I first invested in Gore Street Energy (Battery Storage) it launched raising just £25 million.  Grown since and grow a lot larger yet. 

Pension funds invest in early stage start ups and private equity like everybody else. Though this isn't the market that's being targeted under the reforms.