The package of announcements seeks to improve member outcomes as well as encourage greater scheme investment in private equity and includes proposals for:
• a new Value for Money Framework for all defined contribution pensions which could lead to widespread scheme consolidation
• a radical new approach to dealing with small deferred pension pots through multiple consolidators
• extending the retirement options offered to members of trust based schemes
• taking forward the development of Collective Defined Contribution schemes including a new ‘decumulation only’ variant
These proposals come at a time when the industry is also preparing for the launch of Pension Dashboards as well as enhancements to auto-enrolment.
Steven Cameron, Pensions Director at Aegon said: “Aegon welcomes the Government’s drive to boost investments made by defined contribution pension schemes in private equity and other illiquid investments. This is an underpinning aim behind a massive ‘all guns blazing’ package of proposals unveiled the day after the Chancellor’s Mansion House speech. This includes a new Value for Money Framework to operate right across the defined contribution pensions market, a radical approach to dealing with small deferred pension pots, extending pension freedoms to members of trust based schemes and new collective defined contribution schemes including a ‘decumulation only’ variant.
“Each of these policy proposals are major in their own right, and all have their own admirable aims and merits as well as many challenges and questions yet to be answered. But on top of that, they are all interlinked and their success will be affected by other ongoing developments such as pension dashboards and the future enhancements to auto-enrolment. Charging ahead without a well thought-through over-arching plan could lead to chaos.
“Alongside individual consultations, we are calling on the Government and regulators to engage with the industry to come up with a sensible and workable implementation roadmap. This needs to take into account interdependencies and what makes sense to focus on implementing first.
“We see great value in getting pension dashboards up and running, to allow individuals to see all of their pensions in one place, online. This should be done before attempting to contact millions of customers as part of a sweep up of pots under £1000 into a small number of consolidators.
“Getting the value for money framework agreed and bedded in should also be a priority, with particularly widespread benefits in assuring many millions of the value of their pension scheme. It needs to be fully aligned with the FCA’s Consumer Duty, which goes live at the end of July. The framework will be needed to assess any scheme for authorisation as a ‘high value’ small pot consolidator.
“The Government and regulators want an outcome of the value for money framework to be that poorer value schemes wind up and consolidate into better value, larger schemes. Surely it makes sense for scheme consolidation to happen before attempting consolidation of small pots at individual level. The concept of attempting individual and scheme consolidation at the same time is mind bogglingly complex!
“We support making early improvements to the range of retirement options offered to members of trust-based schemes. But it’s too early to be consulting on offering them access to a decumulation only CDC arrangement when these haven’t yet been legislated for, let alone fully designed or set up in practice.
“Pensions are some of the longest term investments individuals make, and while Government, regulators and industry should always be looking for improvements, a mad rush to implement too much, too soon without a full understanding of the consequences could be highly risky.”
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