Regulations came into force in 2023 that require trustees of occupational pension schemes that provide DC benefits other than additional voluntary contributions (“relevant schemes”) to include their policy on investment in illiquid assets in the statement of investment principles (“SIP”) for the scheme's default arrangement. Trustees must comply with this requirement from the earlier of (a) the first occasion that the default arrangement SIP is updated after 1 October 2023 and (b) 1 October 2024.
“Illiquid assets” are assets of a type which cannot easily or quickly be sold or exchanged for cash. Where the scheme invests in a collective investment scheme, any such assets held by the collective investment scheme are treated as being held by the pension scheme for these purposes.
The policy must include:
1. A statement as to whether or not investments held for the purposes of the default arrangement will include illiquid assets.
2. Where those investments will include illiquid assets:
- A description of the age profile of those members in respect of whom investments will be held in illiquid assets.
- An explanation of whether investments will be held directly in illiquid assets or via a collective investment scheme.
- An explanation of the types of illiquid assets in which investments will be held.
- An explanation of why the trustees have a policy of investing in illiquid assets, including their assessment of the advantages to members of investing in illiquid assets when compared to investments in other asset classes.
- An explanation of whether the trustees have any plans to increase their investment in illiquid assets in the future.
3. Where those investments will not include illiquid assets:
- An explanation of why the trustees have a policy of not investing in illiquid assets.
- An explanation of whether the trustees have any plans to invest in illiquid assets in the future.
Trustees of relevant schemes which have not yet updated their default arrangement SIP to include their policy on investment in illiquid assets should ensure that they do so by 1 October 2024.
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