The plan is designed to unlock billions for investment in UK firms by nudging retirement funds into backing British businesses, infrastructure and start-ups.
In May, 17 of the country’s largest workplace pension providers expressed their intent to invest at least 10 per cent of their defined contribution (DC) default funds in private markets by 2030, with 5 per cent of the total allocated to the UK.
Charlie Nunn said mandation would put funds “in conflict” with their fiduciary legal obligations to find the best returns for pensioners.
Now is a good time to take stock of where your money is being held, Craig Rickman, personal finance editor of interactive investor (ii), said.
Mr Rickman said: “You may need to take some action if you want to do this. Examine the investments in your current workplace pension, and any previous ones too, and play more of an active role in your pension strategy.”
This means your savings may already be targeted for higher-risk private markets unless you have actively chosen a different option.
Do not assume the default fund suits your needs
Default funds – a type of fund that members are invested in if they do not choose a fund when they join their scheme – are meant to offer a “one-size-fits-all” approach. But Mr Rickman warned this may not be right for everyone.
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“For instance, regardless of pension schemes’ pledge to invest more in private assets, investors with plenty of time on their side and/or a more adventurous risk appetite could find that the default fund is too cautious, stymying potential returns and harming their eventual retirement pot.”
However, they added that in the future, if they feel it is necessary, they could force providers to invest more in the UK – something some experts are concerned about.
“Pension scheme trustees have a duty to deliver the best returns for an appropriate level of risk for scheme members, not to back the Government of the day’s economic priorities.”
Mr Rickman said: “The good news is that you don’t have to settle for the default fund.
However, Tom Selby, director of public policy at AJ Bell, noted that it’s not yet clear “whether these providers will choose to increase UK allocations in the defaults alone or across a range of their funds”.
Review and consolidate older pensions
For any previous workplace schemes that might be in default funds, Mr Rickman advised people to dig out the paperwork or log in to their online accounts to find out what they are invested in, and either switch investments or consider transferring to a different plan.
“Merging two or more plans into something like a SIPP can bring several benefits.
“Just make sure your existing plans don’t have any valuable guarantees that would be lost on transfer; taking professional advice is necessary.”
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