Out-Law News 2 min. read

Government seeking views on how to 'simplify' bulk DC pension transfers


The UK government is seeking views on how it can "simplify" bulk transfers of members from one defined contribution (DC) pension scheme to another without seeking the consent of individual members, in a way which retains adequate protections for members.

The existing rules have the potential to be overly burdensome for DC schemes, as they were designed for and are more suited to defined benefit (DB) pensions, according to a recently-issued consultation paper. The government is therefore seeking views on how to simplify transfers from occupational schemes, and transfers from stakeholder pension schemes.

Schemes are permitted to bulk transfer members' accrued rights without their consent provided that certain conditions are met, and only where explicitly provided for by the scheme rules. They may seek to do so in order to consolidate two or more separate pension schemes operated by the same employer, or to transfer members from a single employer scheme to a master trust, for example.

Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said that DC bulk transfers were set to become more popular for "various reasons". For example, the charges and governance regime that has raised standards in DC was having an effect, while the new master trust authorisation regime would also prompt a wave of DC bulk transfers "as certain players exit the market", he said.

"Rather than simply borrow from a system that was set up for DB bulk transfers, it makes sense to tailor something to DC," he said. "Hopefully that is what the call for evidence will result in."

"On a related note, it is interesting that there remains limited appetite to make the same sort of progressive changes in relation to workplace personal pension schemes. These schemes work very much like workplace occupational pension schemes but the restrictive nature of contract law means that transfers and other without-consent activities are much more difficult to pull off. A more consistent approach to transfers and investment switches in all forms of workplace schemes, with all due consumer protection, really should be the aim," he said.

The consultation sets out a number of methods to "reduce unnecessary burdens" on schemes. These include simplifying or standardising actuarial arrangements, and potentially removing the need for actuarial approval entirely where "another type of appropriately qualified independent person" or effective technical guidance for trustees was available.

It is also seeking views on whether to mirror the bulk transfer without-consent requirements applicable to master trusts, contained in the Pension Schemes Bill. Once in force, transfers following certain 'trigger' events such as scheme insolvency will not be subject to the requirements applicable to bulk transfers more generally.

The government said that reducing some of the barriers to transfers would allow for consolidation in the market, resulting in larger schemes with better governance.

"Often (though by no means always), smaller DC occupational schemes will have weaker governance and usually have higher charges," it said in its consultation. "By enabling these small schemes to exit the market or consolidate, improving bulk transfer arrangements should help scale to develop without the need for specific legislation."

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