The pensions industry is being invited to provide evidence to the Department of Work and Pensions as to why consolidation is not happening at a faster rate within the DC sector.
Announcing this latest consultation on this issue, the DWP has confirmed that trustees of schemes worth £100m or less will have to carry out a new ‘value for money’ assessment from October 2021.
The DWP says this part of the consultation aimed to identify and address barriers to greater scheme consolidation in this sector. Guy Opperman, the pensions minister has set out a clear desire fo consolidation in the industry to go further and faster to improve member outcomes.
This consultation states that the DWP’s preference is for schemes that fail the new ‘value for money’ test to be wound up, rather than given time to improve — however this is still under consultation.
Commenting on this latest consultation, Aegon’s head of pensions Kate Smith says: “The DWP’s latest call for input further extends its ambitions to encourage and potentially incentivise occupational DC schemes with funds between £100m and £5bn to consolidate.”
She adds: “With Guy Opperman now setting his sights on schemes with funds up to £5bn, all trustees will be receiving a clear message that size really does matter. And for trustees responsible for schemes with funds under £100m struggling to pass a value for money test, the ‘further and faster’ tone of the call for input clearly indicates the Government favours winding up and consolidation over attempts to improve.”
She adds that the results of the new value for money assessment and the outcome will need to be reported to the members via the chair’s annual statement and to the Pension Regulator.
Smith adds: “The justifications given behind this ‘phase 2’ drive for consolidation are, in line with phase 1, to improve governance, deliver better value for money including lower charges and to facilitate new and innovative investment strategies including in illiquids to help build back Britain following the pandemic.
“The Government strongly believes that fewer larger schemes will improve members’ retirement outcomes. While we agree trustees should consider all investment options, it’s important to strike the correct balance between facilitating such considerations while not distracting trustees from their duty to scheme members and beneficiaries.”
Not all in the pension industry agreed that this consolidation would deliver better outcomes for all members. Barnett Waddingham partner and head of DC, Mark Futcher adds: “It is clear from the consultation responses published and the new consultation launched that the drive to consolidate continues.
“Whilst we agree that there are many schemes in the market which do need to improve and create better value for members, we must also recognise that there are many schemes which offer great value to their members. Consolidation often means moving to a bundled, pre-packaged solution which usually means the members picking up the full cost for services they sometimes do not use. There must be room for own trust schemes to continue to operate.
“The Australian market is cited a few times without recognition that this is a very different offering which is driven by member choice. The Australian system also has significant issues in the ‘at retirement’ phase which they have not tackled. Members making inappropriate choices at retirement is an area of massive ‘value leakage’ – lets tackle this before things get too big!”
Other providers though, who may benefit from this move welcomed this latest consultation. Phil Brown, director of policy at B&CE, provider of The People’s Pension, adds:“We welcome steps by Government to ensure that members of pension schemes are getting a fair deal. We believe that all pension schemes should be subject to tough value for money checks, not just schemes that fall within a certain threshold.”
The consultation inviting input from scheme providers, industry bodies, trustees, members and other interested stakeholders.