Focus on scale should be to drive better outcomes in the pensions industry, not be an objective in itself, TPT Retirement Solutions has claimed in a response to a Department for Work and Pensions discussion paper.
In addressing the paper which looked at key elements of the scale policy, which looks to consolidate DC assets towards default funds with a minimum of £25bn, TPT says it supports the government’s objective of increasing scale in workplace pensions in principle but argued that the detailed framework must align with how assets are invested and governed in practice.
TPT argued that the regime should support larger, better-governed investment pools without overriding sound investment design, excluding assets that already contribute to scale, or weakening the accountability of trustee boards.
Ruari Grant, head of policy at TPT, says: “The framework needs to recognise where scale already exists in practice. Where assets are invested under the same strategy, governance and decision-making framework, their legal or sectional structure should not prevent them from counting towards any scale measurement.
“Ultimately, scale should be a means to achieving better outcomes for members, rather than an end in itself.”
In its response, Standard Life also identified issues with converging members within funds that carry a singular investment approach.
Emma Furlonger, managing director of workplace and retail intermediary at Standard Life, says: “While consolidation has an important role to play in creating a more efficient pensions market, it’s essential that the introduction of a main scale default arrangement framework focuses on the outcomes being delivered for members rather than prescribing a single investment approach.
“As investment strategies evolve, providers must retain enough flexibility to meet common investment objectives through different structures and products where this is in savers’ best interests.”
Furlonger went on to claim that incoming regulations should recognise that scale can already be achieved through shared investment capabilities, governance frameworks and underlying investment building blocks rather than identical fund structures or asset allocations.
In its own response, The Investing and Saving Alliance recommended that the government assess the pension scale across the common funds and investments sitting under different default arrangements, warning that measuring each default in isolation could force effective bespoke arrangements to merge without improving outcomes for savers.
Renny Biggins, head of policy for products and long term savings at TISA, says: “Greater scale can deliver real benefits for pension savers, but bigger does not automatically mean better. Many bespoke arrangements are designed around the particular needs of employers and their workforces while already benefiting from scale through the same underlying investment funds.
“Forcing those arrangements into a single default simply to meet a scale requirement could remove useful tailoring without creating any additional benefit for members. It could even encourage some employers to move towards single employer trusts to regain greater control, increasing fragmentation rather than reducing it.”
TISA claimed that proposed Value for Money chain-linking rules could discourage providers from consolidating weaker defaults if doing so negatively affects the performance assessment of the receiving arrangement.
Kate Smith, head of pensions at Aegon, says: “The ‘Scale’ measures are at the heart of the Pension Schemes Act and along with the VFM Framework and other measures will transform the pension market over the next few years. Together, they have the potential power to drive up member outcomes in the longer term. However, we have concerns about possible disruption to employers and pension scheme members as the market transforms and call on the Government and regulators to adopt a more proportionate and principled approach allowing for greater flexibility.”