The government has called for evidence on improving the rules governing bulk transfers of defined contribution workplace pension schemes, in a move likely to encourage market consolidation.
Under current rules, single employer DC schemes wanting to transfer the bulk of their members to another DC scheme – either a single employer trust-based scheme or multi-employer master trust – without the members’ permission must fulfill a number of requirements.
The rules for DC schemes are exactly the same as those for defined benefit schemes. DWP said potential new rules would be tailored specifically for DC schemes.
DWP said any changes would aim to "reduce unnecessary burdens whilst ensuring members are adequately protected" and "allow providers of stakeholder pension schemes to transfer members to more modern and often lower cost schemes".
The paper stated: “Often (though by no means always), smaller DC occupational schemes will have weaker governance and usually have higher charges.
"By enabling these small schemes to exit the market or consolidate, improving bulk transfer arrangements should help scale to develop without the need for specific legislation.”
The review will focus on three parts of the current rules: the requirement to get an independent actuarial certificate before transferring; ensuring the sponsoring employer has an existing relationship with the alternative scheme; and unique exemptions applying to stakeholder pension schemes.
DWP said early consultations showed stakeholders were most keen to change the actuarial certificate requirements, saying current rules were designed for DB rather than DC schemes.
“In particular there was concern that the current provisions on broad equivalence were difficult to interpret, and actuarial practices varied widely," the paper stated.
"Some stakeholders also found these provisions restrictive in that they prevented the movement of assets to more modern products which they felt to be in members’ best interests."
DWP said there were fewer stakeholder concerns over the need to transfer to a scheme that the transferring scheme has a relationship with, though some stated that this rule could “act as a barrier to the efficient consolidation of small pots in occupational pension schemes”.
The paper also floated the possibility of extending the actuarial certificate exemption for transfers between stakeholder pension scheme to transfers from stakeholder pension schemes to other, more modern schemes.
This consultation period begins today (20 December) and runs until 21 February 2017.
james.fernyhough@ft.com
