Regulators could be given new powers to tackle under-performing pension schemes under new Value for Money legislation, with the potential sanction of closure for those that do not improve.
At this week’s Corporate Adviser summit, Department of Work and Pensions interim deputy director, AE and DC Rob O’Carroll gave an update on the raft of pension legislation that is currently under consultation, with a particular focus on the new Value for Money (VFM) proposals.
O’Carroll said that these proposals need to be backed by “regulatory powers to tackle under-performing schemes and to scrutinise compliance within the value for money framework”.
He added that this should include powers to compel schemes to consolidate or to be wound up if they were not delivering good outcomes for members.
He sad: “There needs to be more supervision of schemes to ensure they are improving and if not then steps taken to ensure they exit the market.”
O’Carroll added that the DWP was taking an “evidence-based approach” which includes “learnings from other countries, including Australia.” In recent years Australian regulators have required schemes that underperform for just two years to write to members advising them that they may be better off switching to a competitor. Although O’Carroll did not indicate that new regulatory powers would be as strict as this he did point out that this these rules have resulted in increased consolidation of pension schemes. In recent year the DWP has explicitly stated that it is looking to drive consolidation in the pension market to boost outcomes for members.
O’Carroll told delegates that the new VFM regulations were being designed to ensure there was appropriate competitive pressure on schemes. He said he was aware that in the workplace pension market that employers were not always well placed to apply those competitive pressures but this could be more appropriately applied through regulation.
These competitive pressures could also be applied through the new metrics that schemes will have to publish as part of this VFM legislation. O’Carroll said that getting these new metrics right would not be an easy tasked, and he stressed that it was important that they covered both the contract- and trust-based pensions in order to enable better comparison of the value for money offered by various workplace schemes in the market.
O’Carroll said that Corporate Adviser’s CAPA data – which provides performance figures across the DC workplace pension market – was a value metric in this area.
He said he was looking forward to engaging with industry stakeholders on how to devise robust, comparative data that would a useful measure of the wider value for money provided by different pension schemes.
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