The Department for Work and Pensions’ (DWP) proposed wind-up requirements for small defined contribution (DC) schemes should be staggered according to scheme size, XPS Pensions Group has argued.
In its response to the DWP’s consultation on improving outcomes for members of DC pension schemes, the pensions consultancy said staggering the requirements would “ensure member outcomes are really improved”.
Proposals from the DWP include detailed guidance for schemes seeking to meet the current requirements, as well as grounds to wind up DC schemes with less than £100m in assets which fail to meet existing standards.
XPS head of DC consulting, Sophia Singleton, explained: “The detailed guidance is helpful and whilst we agree with the principle of improving member outcomes, the DWP approach could have many unintended consequences.
“The government has a clear intention to drive consolidation. But the market may not have capacity to cope with so many schemes winding-up at the same time.
"This in itself may cause member detriment as schemes stop engaging with members and become zombie schemes waiting in line to be wound-up. We think a staggered approach is needed for the implementation.”
Singleton added that the consultation spread the “clear message” that small schemes could not deliver and large schemes could, which she argued was “not always the case”.
She concluded: “In our experience not all large schemes deliver the best member outcomes, whilst there are many smaller schemes that do. If the objective is to improve DC member outcomes then the requirements should apply to all DC schemes regardless of size.”
The DWP launched the consultation on 11 September and it is set to close on 30 October.
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