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Govt to push ahead with small scheme consolidation

Govt to push ahead with small scheme consolidation

The government looks set to press ahead with plans to encourage small schemes to consolidate, according to analysis of consultation documents by LCP.

A consultation paper on a charge cap for auto-enrolment was published by the Department for Work and Pensions last week. 

While seemingly unrelated, the DWP paper also touched on consolidation.

The document stated: “The government remains committed to protecting scheme member outcomes and ensuring the pension market works.

“We have taken measures to streamline the process of consolidation and made it easier for schemes unable to secure value for money in the long term to exit the market and secure a better deal for their members elsewhere.” 

It continued: “We are also planning to consult on regulations to encourage smaller schemes to consider consolidation where this would offer better value to their members.”

The government has already used regulation to drive consolidation in the master trust market and it is now seemingly turning its attention to individual occupational pension schemes. 

Steve Webb, partner at LCP, argued that, once the principle is accepted, it could easily be applied to defined benefit schemes as well.

Sir Steve said: “The government has clearly been encouraged by the success of the master trust process to believe that regulatory action can help to drive consolidation. 

“Whilst size is not always a guarantee of quality, there is no doubt that scale can bring efficiencies and requiring schemes to consider if their current scale offers best value to members would be a step in the right direction.  

“If the government presses ahead with these measures for DC schemes, a similar approach for DB cannot be far behind”

Small scheme consolidation has long been on the DWP's agenda. Indeed the concept of "pot follows member" was first proposed by Sir Steve when he was pensions minister in 2015 as part of the introduction of auto-enrolment.

But Sir Steve's successor, Baroness Altmann, scrapped the process of introducing the scheme on the basis this would be a significant new process for both schemes and members to get to grips with at a time when the pensions market was changing fast.

In a speech given to the Pensions and Lifetime Savings Association in March, pensions minister Guy Opperman spoke of his preference for a selection of providers with large multi-billion pound portfolios, which could exercise greater collective bargaining power than a menagerie of small self-administered schemes.

Mr Opperman said: “Improved scale and improved choice will drive better return.

“I’m looking forward to bringing forward regulations for consultation in the spring to nudge these schemes towards consolidation, and be in no doubt that consolidation is what we’re going to try to do.”

Benjamin Mercer is a reporter at FTAdviser's sister publication Pensions Expert