In paragraph 39 of its consultation on the charge cap, DWP wrote (bold added):
39. 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. 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 turning its attention to individual occupational pension schemes.
In February 2019 the DWP issued a consultation entitled: “Defined Contribution pensions: Investment and Consolidation”, but the DWP website currently says simply that the DWP is ‘analysing feedback’. The deadline for responses was 1st April 2019.
That document set out proposals that small schemes would need to review every three years whether they were offering value for members. One of the drivers for this policy was to increase scale in pensions and thereby to increase the chances of schemes investing in a broader range of assets including social housing and green energy. The consultation also reported on TPR research which found a link between scale and the quality of scheme governance. The paper suggested that small schemes might initially include those with less than £10m in assets or less than 1000 members.
Commenting on the latest announcement, LCP partner Steve Webb said: “‘The Government has clearly been encouraged by the success of the MasterTrust 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”
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