The government is looking to accelerate consolidation of defined contribution pension schemes with assets of up to £5bn.
In two consultation responses and a call for evidence published today (June 21), the Department for Work and Pensions (DWP) is asking for views on how it can encourage consolidation of schemes with between £100m and £5bn of assets under management.
The government is looking at what barriers exist for schemes winding-up and transferring their members elsewhere, with the pensions minister indicating that consolidation would not stop at £5bn of assets.
In his foreword, Guy Opperman said: “This evidence-gathering exercise is the next step on this journey but further action will follow, starting with schemes up to £5bn.
“It is not my intention to stop at £5bn but given the present size of the UK market, this is the appropriate cut off - for now. I strongly encourage views for this call for evidence to help shape further policy on consolidation in the DC market.”
The government is pushing for faster consolidation after it found that if the current trend for falling numbers of DC schemes by between 8 to 10 per cent each year continues, there would still be around 1,000 DC schemes operating in five years’ time.
The government believes this would mean “too many schemes” and wants to accelerate the pace of scheme consolidation over this period to drive this number down.
Mark Futcher, partner and head of DC at Barnett Waddingham, said: “It is clear from the consultation responses published and the new consultation launched that the drive to consolidate continues.
“Whilst we agree that there are many schemes in the market which do need to improve and create better value for members, we must also recognise that there are many schemes which offer great value to their members.
“Consolidation often means moving to a bundled, pre-packaged solution which usually means the members picking up the full cost for services they sometimes do not use. There must be room for own trust schemes to continue to operate.”
It comes as the government confirmed plans to require schemes with assets below £100m to prove value for members, or face being advised to wind up or consolidate.
This value for member assessment will take into account costs and charges, investment returns and various elements of governance and administration.
But the government has pushed back the implementation of these assessments from October until the end of 2021.
This means the first value for member assessment will apply for the year ending after December 31, 2021.
According to the government, this will give schemes extra time to access the necessary net return and costs and charges data, particularly in the first year of reporting.
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.