Allowing pension schemes to invest in higher long-term productive investments is a “worthwhile aim” but should not distract trustees from acting in members’ best interests, Aegon has warned.

The provider was responding to comments from Bank of England (BOE) governor, Andrew Bailey, who has backed the idea of loosening regulations on pension schemes investment choices to allow them to invest in illiquid assets as part of efforts to accelerate the pace of the nation’s economic recovery.

Aegon pensions director, Steven Cameron, commented: “The BOE is joining the government in looking at how to remove barriers or offer ‘encouragement’ so that pension schemes invest more in illiquid investments. This is a worthwhile aim, but it mustn’t take priority over the trustees’ key duty to act in the best interest of members.

“It’s only the largest pension schemes which are likely to see such investments as viable and this is one reason why the government is separately looking to drive scheme consolidation so there are fewer, but larger defined contribution pension schemes.”

He pointed out that defined contribution schemes needed to be able to allow members to view their pot’s value, switch between funds, transfer to other schemes and draw benefits at short-term notice, adding that “pension rules don’t permit the scheme to defer paying out, which does create issues if part of a member’s entitlement is invested in illiquid investments”.

Cameron noted: “Separately the Financial Conduct Authority has been consulting on introducing mandatory notice periods to property funds to avoid these having to hold large holdings in liquid assets to protect against a spike in encashments.

“Unfortunately, this would exacerbate issues for defined contribution pension schemes and rather than leading to a greater investment in illiquid assets, could actually reduce their willingness to invest in them.”

Speaking more generally, Cameron stated that it was “good to see the government recognise the important role pension schemes and their investments play in supporting the UK economy and its recovery from the pandemic crisis”, commenting that it was a change from “the focus in parts of government often being on how to reduce the tax relief pension savers receive”.

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