ERI rules to be relaxed for large master trusts
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
The government is moving ahead with changes around employer-related investments by large defined contribution schemes in the hope this will facilitate greater investment in illiquid assets.
The new regulations apply to master trusts with 500 or more participating employers and will “maintain saver protections while removing disproportionate red tape”, the Department for Work and Pensions has said, responding to chapter 3 of this year’s bumper DC consultation on Tuesday.
“These measures remove red tape and will enable schemes – and savers – to benefit from more diversified portfolios,” said pensions minister Guy Opperman.
The restrictions at present are:
- a ban on certain loans of a pension scheme’s assets to an employer that participates in the pension scheme
- a limit on trustees and managers investing more than 5% of a scheme’s assets in an employer
- for multi-employer schemes, a limit on trustees and managers investing more than 5% of a scheme’s assets in any one participating employer, with a cap of 20% on the total amount of a scheme’s assets that are invested in an employer.
The employer-related investments consultation was launched earlier this year as part of a package of measures to drive DC schemes to allocate more to illiquid assets, such as infrastructure and private equity. Other measures included a proposal for schemes to “disclose and explain” their illiquid allocation and for schemes with over £100m of assets to disclose their allocation in the chair's statement. The consultation was published after a previous one on taking performance fees out of the 0.75% DC default charge cap had received mixed feedback.
The majority of responses were supportive and welcomed the rationale for changing the rules, the DWP said, which was that the current regulations relating to ERI in the 2005 Regulations present a barrier, or could be a barrier, to master trusts expanding their investment strategies; for example, each firm in a private equity portfolio needs to be checked against participating employers under current rules.
Some respondents highlighted however that these restrictions are not the only reason for lack of investment in illiquids.
The threshold number of 500 participating employers led to the most comment, according to the DWP, which said most respondents agreed that the threshold was “set at a sensible level”.
