On the go: The Department for Work and Pensions is questioning whether the current alternative tests used by defined benefit and hybrid schemes for auto-enrolment suitability are fit for purpose.
In a consultation launched on Tuesday, the government invited views from the industry on the two alternative tests DB schemes can use to demonstrate the quality of retirement they provide for the purposes of auto-enrolment.
Before the introduction of the new tests, pension funds had to meet the test scheme standard, which allows schemes to demonstrate they meet the minimum necessary standard by comparing their pension benefits with a hypothetical test scheme.
However, respondents to two consultations in 2013 and 2014 expressed that the test scheme standard was unnecessarily complex, and employers would benefit from the flexibility to use an alternative, simpler test.
Trustees and employers have in the past five years been able to use two alternative tests to check whether they are meeting their auto-enrolment duties: a test that enables certain schemes to use the money purchase quality requirements based on a minimum contribution equivalent to 8 per cent of qualifying earnings; and a cost of accruals test based on the cost to the scheme of the future accrual of active members’ benefits.
In the new call for evidence, which will run until October 21, the DWP is questioning whether the alternative tests continue to “deliver the intended simplifications and flexibility” as it was intended when they were created.
The government is also querying who is carrying out the tests — the employers or professional advisers — and whether there are any unforeseen issues with the alternative quality requirements when compared with the test scheme standard.
