Push for simpler DC bulk transfers receives industry approval

Like in the defined benefit market, consolidation will set the tone for DC going forward: as new regulations for mastertrusts are introduced with the Pension Schemes Bill, these will be a special focus, but other types of DC scheme are also coming under the spotlight.

The consultation was launched this week by the Department for Work and Pensions and is open until February 21 next year.

'Reduce unnecessary burdens'

The DWP is seeking views on how the current framework for bulk transfers without member consent can be improved where, “for example, a company wants to consolidate its pension assets from two or more schemes, or where a single employer scheme wishes to exit pension provision and transfer members into a mastertrust”.

The DWP said it is hoping to “reduce unnecessary burdens whilst ensuring members are adequately protected”.

Achieving scale is a key consideration, the DWP noted, as the exercise “also gives us the opportunity to revisit a potential barrier to allowing scale to develop in the DC landscape”.

It maintained that smaller DC occupational schemes often have weaker governance and higher charges, and said that it aims to facilitate consolidation without the need for new legislation.

The consultation does not cover mastertrust to mastertrust transfers, as the new Pension Schemes Bill provides for this.

Keep an eye on the details

Mark Futcher, head of DC at consultancy Barnett Waddingham, said with the rise of mastertrusts increasing volumes of members will be moved from one DC scheme to another going forward.

“It is particularly important that trustees are aware of the minutiae of the transfer and the product or scheme the members will end up in,” he said.

Futcher noted that the actuarial certificate required for many non-consent transfers at the moment is “open to too much interpretation”.

He said greater clarity will be welcomed – “particularly around whether it is all about charges or whether longer-term ‘value’ can be determined”.

Pete Glancy, head of industry development at provider Scottish Widows, said the consultation is welcome as savers in occupational DC schemes are often the least informed and least engaged.

“Acting in the best interests of members who are either disengaged or for whom no current contact details are held is missing piece of the governance jigsaw,” Glancy said.

Actuarial test is a sticking point

He pointed out that the actuarial test could be replaced with a pro forma solution focusing only on certain material areas of comparison, to help reduce the time and cost of an actuary signing off on the test.

Darren Philp, director of policy and market engagement at mastertrust The People’s Pension, agreed the actuarial test is a burden.

“We need to move away from DC transfers being governed by rules designed for DB. Specifically, the need for an actuarial certificate makes no sense in the world of DC bulk transfers,” he said, adding: “It simply gets in the way of consolidation and just adds unnecessary cost. This outdated requirement needs to be dropped."

Time and cost

UK managing director of mastertrust LifeSight Jo Kite said there would be many advantages for DC provision if the consultation leads to more certainty for trustees and employers.

“We work with clients every day who are going through these processes and are very aware of the lack of clarity under current legislation. The guidance currently available leads to uncertainty and confusion,” she said.

Kite also highlighted the amount of time needed to make a transfer. “The time and cost it can take for a transfer without consent to be signed off is disproportionate,” she said.

“In particular, clarity on issues around investment strategy and transition costs, and a move away from ‘transfer credit’ terminology which [doesn’t] align well to DC would be high on our wish list.”