The Department of Work and Pensions (DWP) has issued a call for evidence on the current restrictions governing the bulk transfer of DC pension from trust based and occupational schemes without member consent.
This follows the launch of auto-enrolment and the increasing prevalence of master trust arrangements, and concerns that have been expressed across the industry that the current regulations on bulk transfers from traditional trust based DC schemes are cumbersome and may lead be leading to poor Member outcomes. It should also be seen in the light of the DWP’s general moves to strengthen DC governance.
Consolidation is at the heart of many bulk transfers of member benefits, for example, to a larger and more suitable scheme. In practice, transfers of this kind can only take place without member consent which brings into play the existing – and in some cases restrictive – regime.
The consultation looks at three areas:
1. The requirement for an actuarial certificate
Currently an actuarial certificate is required before any transfer of benefits from a trust without member consent. This must certify that the benefits under the receiving scheme are "broadly no less favourable" than those of the transferring scheme. This requirement has its origin in DB regulations, and there is some uncertainty on how this requirement is applied in a DC context. The consultation asks whether an actuary's professional judgment is still the appropriate standard to use when protecting member interests, or whether alternatives such as issuing technical guidance enabling Trustees to make their own decisions acting in a fiduciary role could apply as an alternative.
2. The ‘relationship test’
Currently a transfer must be between schemes satisfying one of two ‘relationship tests’, being either that they both relate to employees who are (or have been) employed by the same employer; or that they relate to different employers but the transfer is due to corporate activity between them such as a merger. As the consultation highlights, concern has been expressed that this could make it difficult to transfer members out of small orphan schemes, or for employers to consolidate separate small DC pots. The consultation asks for views on alternative approaches.
3. The regulations governing stakeholder schemes
In addition to the views sought on the bulk transfer of member benefits without consent from traditional trust based DC schemes, the consultation also calls for views on the regulations governing bulk transfers without consent from stakeholder schemes, which post-auto enrolment have been largely overtaken by master trusts and group personal pension schemes. These regulations are often considered unnecessarily restrictive as, for example, there is a requirement that the transferring scheme has commenced winding up, and that the receiving scheme is also a stakeholder scheme.
The consultation suggests it may be in the interests of members of stakeholder schemes to relax these rules, permitting for example transfers to an employer’s existing DC group personal pension scheme.
It does not consider DB schemes or DC schemes which offer investment return guarantees during the accrual phase or guaranteed annuities. The consultation is open until 21 February 2017, with a view to having any amending legislation in place by April 2018.