XPS has called for the Department of Work and Pensions to slow down consolidation plans within the pension industry.
Its comments are in response to DWP’s consultation on ‘Improving outcomes for members of DC pension schemes.’
The DWP is proposing that schemes with assets of less than £100m which don’t meet existing DWP standards must wind-up. In most cases this involves consolidation into a larger master trust.
Schemes with assets of more than £100m are exempt from these new proposals.
But while XPS says this should improve member outcomes, it wants to DWP to consider staggering these requirements by scheme size. If not it says the market may not have the capacity to cope with large numbers of smaller schemes looking to consolidate at the same time.
XPS head of DC consulting Sophia Singleton says: “The detailed guidance is helpful and whilst we agree with the principle of improving member outcomes, the DWP approach could have many unintended consequences.”
“The Government has a clear intention to drive consolidation. But the market may not have capacity to cope with so many schemes winding-up at the same time.
“This in itself may cause member detriment as schemes stop engaging with members and become zombie schemes waiting in line to be wound-up. We think a staggered approach is needed for the implementation.
“There is also a clear message that small schemes can’t deliver but large schemes do – this is not always the case.
“In our experience not all large schemes deliver the best member outcomes, whilst there are many smaller schemes that do. If the objective is to improve DC member outcomes then the requirements should apply to all DC schemes regardless of size.”