The Department for Work and Pensions has attempted to smooth the path towards consolidation of defined contribution arrangements with draft regulations published on Thursday.
The new rules on bulk transfers of DC members without consent, subject to consultation and finalisation, will remove the requirement to obtain an often costly and time-consuming actuarial certificate before completing a 'pure' DC-DC move.
They would also remove the scheme relationship condition, which currently limits transfers without consent to situations where there is some relationship between the employers using the transferring and receiving schemes.
The consultation period ends on November 30 this year.
Anything that makes life easier in the pensions world is always welcome
Gino Rocco, Dalriada Trustees
John Wilson, head of technical at JLT Employee Benefits, expected the new regulations to accelerate an already significant trend for consolidation in DC.
“We have already seen some of our single-employer trust schemes choosing to move across to mastertrusts for various reasons,” he said.
If the barriers to consolidation were at least partly “more of perception than reality”, Wilson said the rule change would be particularly helpful for consolidating tiny deferred pots, which since the end of short-service refunds would otherwise have been eaten up by charges.
A welcome overhaul
The previous rules on bulk transfer without consent were designed for an era when defined benefit schemes made up the majority of the UK pensions landscape.
For example, the actuarial certificate requirement was designed to make sure that members’ accrued rights were preserved upon transfer. However, DC transfers rarely require any actuarial work to be done.
The scheme relationship requirement originally served to limit DB-DB bulk transfer activity to reorganisation of pension arrangements by a corporate group or upon sale of a business.
However, experts say it now puts a brake on employers and trustees merging their DC arrangements into potentially more efficient mastertrusts, where participating employers share no particular relationship.
"Anything that makes life easier in the pensions world is always welcome," said Gino Rocco, senior pensions lawyer and independent trustee at Dalriada Trustees, adding that the new regulations are a better fit for a pensions landscape that features mastertrusts.
Rocco said the new rules transfer power from actuaries to trustees: "As long as the trustees confirm that the conditions that are set out under the new regulations are satisfied, then you can do it."
The new rules also seek to reinforce member protections upon bulk transfer without consent, by adding “further guidance for trustees on how to review the suitability of the receiving mastertrust”.
Trustees should now consult an independent professional before transferring to any scheme that is not an authorised scheme. If members are currently subject to the default charge cap, any scheme or fund they are transferred into without consent must also be subject to the cap.
Trustees could still be liable
Penny Cogher, pensions partner at law firm Irwin Mitchell, said she was surprised that the regulations did not include a statutory discharge of responsibilities for trustees handing their scheme over to a mastertrust.
"If trustees do go through the right processes... why shouldn't they get a statutory discharge?" she asked. It is unclear how long trustees would be liable for liabilities such as member complaints, and Cogher advised boards to seek a discharge from the receiving scheme instead.
