Bigger is better! DC schemes under pressure to consolidate

Guy Opperman took the opportunity at Professional Pensions Live this week to remind the industry of his goal of fewer, larger Defined Contribution (DC) Schemes.

We were poised for a mention of the upcoming Value for Members (VFM) requirements for so-called small DC schemes (up to £100m).  But on Tuesday (14 September 2021), the Minister for Pensions and Financial Inclusion confirmed that his next task is to map out the pathway for schemes in the £100m – £5bn size-range, stating: “It’s good for members, it’s good for outcomes … there are greater opportunities for someone that does consolidate”. See a clip of what Guy Opperman had to say here.

Value for Members: an exercise in futility?

With the Government set on consolidation, it looks like it is only a matter of time before requirements are strengthened even further. Particularly, if too many DC schemes are seen to pass the VFM test.

Questions for Sponsors and Trustees

If you are a Trustee or a Sponsor of a DC scheme you should be looking at the master trust market and comparing that to your current DC scheme. Can your DC scheme really keep pace with developments in the same way as a master trust? What is the customer experience for your members? Do they have access to smartphone apps and quality education materials? How do the charges compare?

As a sponsor do you really want to be carrying the burden of your own pension trust when the Government has stated their priority is to drive consolidation further?

“The government views accelerating the consolidation of the DC market into fewer, larger schemes as a priority. For this reason, the efficacy of any amendments made to regulations such as the current proposals will be kept under review. If any new requirements do not drive consolidation at sufficient pace, the government will develop legislation to mandate consolidation.”

Capacity crunch

We are recommending early action to avoid being caught up in a capacity crunch across the providers.  It will be worthwhile conducting your review now while there is still availability for you to be in control of your transition timeframe and choice of provider.

VFM test?

Trustees and Sponsors should be thinking about the cost and effort involved in carrying out VFM tests, for what could be a futile exercise if the Government is going to push for more consolidation.

After hearing Guy Opperman, Go Pensions Managing Director, Chris Stanley, said “the industry will spend millions in consulting fees to meet VFM requirements which may become more stringent to align with the governments goals. Why not consolidate now?”

Last year we discussed the draft VFM regulations in our article Are you ready for value for members assessments? Since then, we have continued our market research to understand how they can support smaller DC schemes.

Master trust market developments

If you would like to know more about how to approach your VFM assessment or would like to discuss the master trust market, we will be delighted to chat to you.  We can share our views on the latest developments master trusts have to offer, what providers will be a suitable comparison and how we can help streamline a selection process for you.  Get in touch with Tina on 020 8213 5890.

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