A fee limit protecting UK retirement savers from high fees is set to be relaxed further amid proposals to get pension funds to invest billions of pounds in unlisted investments like capital investment.

On Tuesday, the government will announce its intention to exclude from the cap on corporate pension fees “well-designed” performance fees, typically levied by private equity and venture capital managers, according to the details of the proposal seen. by the Financial Times.

These fees are currently included in an annual cap of 0.75 percent on fees for self-enrolled workers in occupational pension plans known as defined contribution plans. But trustees are rarely invested in assets that charge such fees due to concerns ranging from cost transparency to volatility.

The government should say it is committed to removing barriers to investment in all asset classes that could bring benefits to retirement savers, according to an official briefed on the proposal.

Ministers said this year that reforms are needed to allow directors to invest in so-called illiquid industries, those in which it is harder and more expensive to buy and sell assets. Performance fees levied by private equity and venture capital funds are generally charged when a manager exceeds a set performance target, but they can be very volatile.

The consultation comes at a time when Chancellor Rishi Sunak is looking for ways to tap billions of pounds in pension funds to invest in long-term projects to help deliver Prime Minister Boris Johnson’s pledge to to spread economic growth across the UK.

Certain unlisted assets, such as infrastructure and private credit, are accessible without paying outperformance fees. But while venture capital and other forms of private equity tend to pay off and are seen as more difficult to access than more liquid investments like stocks, they are also seen to offer potential higher gross returns.

“Investing in asset classes such as green infrastructure, private equity and venture capital fits well with DC’s long-term horizons. [defined contribution] plans, ”said Guy Opperman, Minister of Pensions, in a statement to the FT.

“Such investments have the potential to provide better returns to members as part of a balanced portfolio and help maintain jobs, our communities and the environment,” said Opperman. “We propose to increase the flexibility for directors to access a range of assets while ensuring that members are protected against foreclosure charges.”

The move comes after the government this year moved to give trustees more flexibility on how they account for performance fees in the fee cap in a bid to stimulate investment in illiquid assets.

Mick McAteer, co-founder of the Financial Inclusion Center and former board member of the Financial Conduct Authority, said the move was “unnecessary and counterproductive”.

“It will undermine the value of retirement savings by allowing an already inefficient industry to simply extract more value,” McAteer said.

“The government should keep the pressure on the charges. But he seems to have once again bowed to pressure from the industry lobby. We see a pattern here. Not a good sign. “

A spokesperson for the British Private Equity and Venture Capital Association lobby group said he supported “removing deferred interest and well-designed performance fees from the cap” because the high fees in the industry “should be justified by strong long-term performance “.

Buyout groups charge up to 2% per annum in management fees and additionally take 20% of profits above a set threshold, far exceeding the current cap of 0.75%.

The government consultation ends on January 18 of next year.

Additional reports from Kaye Wiggins