Trustees of sub-£100m single-employer defined contribution (DC) schemes will be forced to consolidate if they are assessed as not giving good value to members, under draft rules proposed by the Department for Work and Pensions today.
The new rules are contained in a consultation – Improving outcomes for members of defined contribution pension schemes – published today.
Where trustees of smaller schemes consider that the scheme is not delivering good overall value following its value for members assessment, they will be required to wind up the scheme and consolidate, the proposals say.
In circumstances where trustees are realistically confident that required improvements can be made, and/or where the wind up and exit costs may exceed the costs of making such improvements, and/or where there are valuable guarantees that would be lost on consolidation, the scheme may seek to improve.
The new rules apply to schemes with less than £100m of money purchase assets, although schemes set up within the last three years are exempt.
If the trustees fail in this attempt to improve they will be expected to wind up the scheme and consolidate the members into a scheme that offers better value.
The DWP also proposes that schemes of all sizes must publish net returns for their default and self-selected funds in the annual chair’s statement.
Schemes will be required to assess:
• net investment returns
• measures of administration and governance which include:
• promptness and accuracy of financial transactions
• appropriateness of default investment strategy
• quality of investment governance
• quality of record keeping
• quality of communication with members
• level of trustee knowledge, understanding and skills to run the scheme effectively
• effectiveness of management of conflict of interest
Costs, charges and net returns would be assessed relative to those of at least 3 other schemes while factors of administration and governance would be assessed absolutely within the scheme.
The consultation includes its response to its February 2019 consultation ‘Investment Innovation and Future Consolidation’ to encourage pension schemes to invest in a more diverse range of long-term assets, including illiquid products such as venture capital and green infrastructure.