Guest comment: DC consolidation will be key

Since the publication of the Office of Fair Trading’s 2013 report into the workplace DC pensions market we have seen a host of measures from the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR).

Many of these have been intended to increase value for money and improve the quality of DC pension schemes. Even if consolidation was not the primary driver of this, it has certainly been one of the impacts with the number of schemes with more than 12 members falling from 4,100 in 2010 to 2,180 in 2018.

DWP is taking things a step further by consulting on a new requirement for scheme trustees to assess whether or not they should continue or whether they should consolidate into a different scheme.

That’s reasonable; the empirical evidence seems to show that larger schemes offer both higher investment returns and lower operating costs. There seem to be no diseconomies to scale either.

But these rewards on scale seem contingent on the quality of governance.

That means that if this consolidation drive is to succeed, schemes need to be able to identify well run schemes to consolidate into. Recent reforms to the regulations governing bulk transfers without consent have streamlined the transfer process and sensibly include a requirement for trustees to receive independent advice prior to transfer.

How well these regulations work to encourage and enable transfers into high quality pension schemes will strongly shape the success or failure of the proposed consolidation measures.

No doubt DWP will keep a close watch on how effective they are.

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