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UK DC Pensions View High Fees as ESG Investment Barrier

UK defined contribution (DC) pension schemes are reluctant to accept higher fees on ESG investments, despite average charges decreasing by 20% over the past decade, a report by investment consultancy firm WTW revealed. Only 26% of schemes are willing to compromise on higher charges for greater access to illiquid assets and private markets, and a mere 25% express interest in boosting their investments in ESG strategies, even if it means incurring higher fees. The remainder appear either reluctant or uncertain about such a trade-off, the report noted. The recent government pension proposals collectively referred to as the ‘Mansion House Reforms’ are encouraging DC schemes to consider more expensive yet potentially higher growth assets like unlisted equities, private markets, and other illiquid assets. Gemma Burrows, Director in WTW’s Retirement Business, said: “While it’s great news that DC schemes have successfully negotiated down fees over the past decade, in reality, we know from our research that these modest gains do not alone provide a significant boost to average pot sizes for members. Scale and innovation are needed quickly in this area, and careful selection of investment strategies, asset managers, and funds will be a key part of the decision.” Additionally, the report touched upon the growing interest in diversity, equity, and inclusion (DEI) within DC pension schemes. Approximately 45% of schemes intend to address their gender pensions gap, while only 8% have taken concrete measures to address retirement disparities among different demographic groups. 

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