Partner Kat Smilewicz was invited by New Model Adviser (NMA) to take part in their State of the Nation feature, which asks leading independent financial advisers about their work. Kat was asked to comment on whether she welcomed Budget proposals to allow DC pensions to invest in illiquid assets. Her response was as follows:

While the ability to invest in illiquid assets through DC pensions is great news for the British economy; the illiquidity within a pension portfolio creates a difficulty for those relying on flexible income in retirement.

As flexible access to pension funds is one of the most important guarantees introduced by the pension freedoms of 2015. Taking a position in illiquid assets has to be very carefully considered by the fund.

On balance, diversification within portfolios has always been key to successful fund management and the ability to invest in illiquid assets will facilitate investments into very interesting projects not otherwise accessible to retail investors.

Creating legislation around pensions is one thing. The readiness of pension providers to accept the changes and offer access to illiquid solutions is another.

As it stands now, hardly any DC pension schemes can offer access to illiquid assets. The required sophisticated operational framework, the complexity of valuing these assets, and the costs involved, mean Budget proposals are a long-term project.

Therefore, the funds currently held within DC schemes may not have a significant impact on helping the British economy out of the current crisis. 

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