DWP welcomes CMA findings; legislation expected in 2020

The Department for Work and Pensions (DWP) has welcomed the findings of the Competition and Markets Authority’s (CMA) investigation into the fiduciary management and investment consultant markets, and will look to bring regulations into force by 2020.

In its official response to the CMA’s investigation published today, 12 March, the DWP said that it will now move to introduce regulations into the main body of pensions law, replacing the CMA’s final order which is expected in June this year.

The proposed remedies, first published in December, will require pension schemes to run a competitive tender before choosing a fiduciary manager for more than 20 per cent of its assets, in order to drive up standards and decrease costs across the industry.

Trustees will also be required to set strategic objectives for the scheme, after the watchdog found that “below average” quality firms had higher market shares that “above average” quality firms.

Pensions Minister Guy Opperman, said: “Changes we are proposing will have a positive impact on millions of people’s pension pots.

"The market sometimes restricts trustees’ ability to find the best value for money, meaning that defined benefit schemes are less affordable and more difficult to fund while defined contribution schemes face higher costs and reduced returns for members.

"We want trustees to be better equipped and engaged when accessing services which have a huge influence on decisions affecting how much their members will have to live on in retirement."

New DWP regulations will also allow The Pensions Regulator (TPR) to oversee the proposed duties of trustees.

“As well as allowing TPR to more effectively monitor compliance, it will integrate the monitoring function with the production and maintenance of guidance, allowing TPR to update one in the light of insights from the other," DWP added.

“Overall the proposed remedies will encourage trustees to better engage and monitor the value for money of the services they use.”

TPR will deliver guidance for trustees on how they should be running a competitive tender process, as well as broader guidance for trustees on engaging with fiduciary managers and investment consultants.

The regulator said it will consult on the framework of the guidance in June or July, for six to eight weeks. It hopes to have it in place by the end of 2019.

TPR commented: “Trustees play a vital role in helping to ensure the best possible outcomes for members. Driving up standards of scheme governance is a priority.

“TPR wants to see, and support, those running pension schemes being knowledgeable, empowered and an effective first line of defence for scheme members.”

Speaking at the Pensions and Lifetime Savings Association (PLSA) Investment conference last week, TPR said that trustees that are looking to tender before the guidelines are published must protect themselves by documenting the process, in order not to fall foul of the incoming guidelines.

The CMA also recommend that the HM Treasury expands the Financial Conduct Authority regulatory perimeter to cover services provided by investment consultants.

The government has said it will consult on the matter “in due course”.

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