Key Dates
Future of the defined contribution pension market: the case for greater consolidation published on 21 June 2021.
The call for evidence closes on 30 July 2021
Summary
The DWP has issued a call for evidence aimed at understanding the barriers to further consolidation of occupational defined contribution (DC) pension schemes in the UK. It follows consultation in September 2020 on new regulations to require trustees of schemes which have existed for at least three years and which have less than £100m in assets to justify their continued existence via a more detailed value for members (VFM) assessment, including a comparison of their scheme’s net returns with those of three larger schemes.
Following the call for evidence, the Pensions Minister intends further action on consolidation, starting with schemes up to £5bn of assets, and has asked for views on how to incentivise the consolidation of schemes with between £100m and £5bn of assets.
The call for evidence was issued alongside the DWP’s response to consultation on performance fees and aspects of ensuring VFM, plus final statutory guidance on reporting costs, charges and other information; and on completing the value for members assessment and reporting net investment returns.
Potential barriers to consolidation which the government has already identified include:
- Reluctance of potential receiving schemes to accept transfers in of “low value” members;
- The significant costs of closing a scheme and transferring to an arrangement with a different provider, even though this may result in long term savings;
- Charging structures, including that employer-established DC schemes often do not charge members for administration, whereas master trusts usually do levy an administration charge on members;
- Complexity around transferring members to a scheme with a different charging structure;
- Bespoke arrangements in some smaller DC schemes which may be impossible or more expensive to replicate in a master trust; and
- Cultural factors, including a preference by some employers and their employees for a traditional employer-established scheme rather than a master trust.
Other areas the DWP asks for input on include:
- How any risks associated with consolidation may be mitigated;
- How assessment of a “good value” scheme may be widened from the current tendency to focus on low costs and charges, to include broader issues such as investment strategies and net returns. (With this in mind, the consultation response issued alongside the call for evidence confirms that all relevant DC schemes will be required to publish the net returns of their default arrangement);
- How a similar but more tailored approach to requiring a comprehensive VFM assessment could be applied to schemes with assets of more than £100m.
Date Accessed: 28/05/2022