Defined contribution (DC) pension scheme bulk transfers will be made easier from April 2018 under new rules being brought in by the government.
The Department for Work and Pensions (DWP) has scrapped two previous requisites for bulk transfers without member consent.
The requirement for an actuarial certificate should be removed for ‘pure’ DC-DC transfers, where there are no potentially valuable guarantees or options to be assessed.
In response to a consultation on this matter last December, responders said that the cost of obtaining the certificate, and reviewing and acting on the actuary’s advice can be significant.
The scheme relationship condition, which currently requires transfers without consent to take place where there is some kind of underlying relationship between the employers using the schemes, will also be scrapped.
The majority of respondents to the consultation said that it serves no purpose in a ‘pure’ DC landscape, where members’ benefits are not dependent on a strong employer covenant, and can, for example, prevent the use of master trusts if the employer is not participating.
The condition can also pose a problem for schemes where the trustee board are still in existence, but the sponsoring employer no longer exists.
To guarantee that members are protected when their pensions are transferred without consent, the government is proposing that their protections under the charge cap will transfer into the new scheme.
Trustees will need to consider two elements to guarantee that a transfer is in the members’ interests: that the scheme is a well-run scheme, in which members’ rights and benefits can reasonably be judged to be secure; and that member outcomes will be of a similar or better standard than those in the ceding scheme.
Where the transfer is not into an authorised scheme, the trustees will also need to review the receiving scheme, with the assistance of The Pensions Regulator or the DWP.
Any changes to the legislation, however, will not apply to defined benefit schemes, where the actuarial certificate still plays a vital role, or for DC schemes which include guarantees, as these can and should continue to be effectively assessed by actuaries, the DWP said.
Guy Opperman, the minister for pensions and financial inclusion, announced this consultation last week at the Pensions and Lifetime Savings Association conference.
He said: “Many smaller DC schemes are well run and go to great efforts to ensure their schemes offer good value to members.
“However, we are aware that some employers no longer wish to offer a DC scheme; and believe that members will receive better governance, greater administrative efficiency and better outcomes overall in larger schemes.”
Mr Opperman also argued that the current rules are “a key obstacle to allow the DC scheme consolidation to develop”.
According to Sharon Bellingham, senior consultant at Hymans Robertson, this consultation is “long overdue”.
She said: “It has been quite clear that the prevailing requirements are not suited to 21st Century DC to DC change; they are very much at odds with the current pension landscape and direction of travel, an unnecessary hangover (albeit well intended) from the DB world.”
However, Ms Bellingham argued that it is key to avoid “a free for all”.
She said: “It is imperative that members' interests remain protected and are at the heart of decision making.
“I would expect the further guidance that is due to follow to be in the spirit of assessing value for members.”
The consultation closes on 30 November.
maria.espadinha@ft.com
