Kate Smith, Head of Pensions at Aegon said: “The latest Pension Regulator membership numbers show clearly that a key tipping point has been passed and Defined Contribution schemes are the pensions of the future, certainly in the private sector. As private sector Defined Benefit schemes continue to decline, employers are overwhelmingly choosing DC schemes for auto-enrolment. The TPR’s latest numbers don’t include employers who choose to use group personal pensions for their employees’ pension savings, so the true scale of the shift to DC will be even higher.
“It’s important to note that DB schemes tended to be much more generous than current DC. For the time being the majority of those in receipt of a pension will have DB pension, but in time this will change and the lower levels of income could have a big effect on society.
“As more people save in a DC it’s increasingly important that the pension tax regime is future fit. Currently the lifetime allowance favours DB schemes by allowing DB savers to build up twice the pension value of DC savers. It’s time that government removed this anti-saving barrier for DC savers.
“The Pensions Bill will give members of master trust greater protection, which is a welcome move as many master trusts currently sit outside the regulatory regime. But where a master trust is offered by a PRA/FCA regulated provider, members already benefit from tough regulations, including robust capital adequacy standards.
“We also support the Pension Regulator’s focus on ‘micro schemes’ with fewer than 12 members. These can be costly to run on a standalone basis and members could benefit from greater security and lower cost if moved to a larger multi-employer scheme, whether group personal pension or master trust.”
Rona Train, Partner at Hymans Robertson, comments: “Not all small DC schemes are poorly governed but for many, there may be benefits in moving to a master trust. For companies making this move it is vital that they do proper due diligence on master trust providers and the master trust assurance framework should help this.
There are currently 87 master trusts, so there is a wide range to choose from and some are better quality offerings than others. Once a master trust is appointed, however, it should not be ‘set and forget’. Large amounts of money are being ploughed into DC schemes and employers will want to make sure they are getting the best ‘bang for their buck’. And while the structure of the contract is important for outcomes, contributions remain the main determinant of results.”
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