The government has introduced several policies designed to encourage more defined contribution (DC) schemes to invest in illiquids.

Despite moves such as changing performance fee calculations for the member charge cap and the work of the productive finance working group, there still remain a number of barriers to discourage schemes from investing in illiquids.

In November 2021, the government issued a further consultation, on whether to take performance fees out of the charge cap altogether.

Removing performance fees could at least partially address two of the five main barriers to DC scheme investment in illiquids identified during PPI interviews with DC investment gatekeepers in 2020 (sponsored by DCIF): pressure to keep costs low and private market charging structures.

The other three barriers: trustee reluctance, governance requirements, and lack of supply for platform users, will need to be approached separately.

Cost pressure and competition was considered the main barrier by interviewees, who said that a change in messaging from the government, with less emphasis on charges and more on return-seeking and diversification behaviour would help change scheme attitudes.

However, over the long term, natural scheme growth in asset value and number of members should help to ease the effect of all the barriers for a wider number of schemes.

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