Guest Comment: Proving value for money

There needs to be consolidation in the defined contribution (DC) market. Driving up scale will benefit customers and increase efficiency, so the recent draft regulation on DC consolidation by the Department for Work and Pensions (DWP) is welcome.

Smaller schemes are often less able to comply with regulation, and with new rules coming in on pension scams, dashboards and climate risk, it’s important that small schemes can show they provide value for money – as some surely will – or otherwise
merge.

We want to ensure DWP is aligned with the Financial Conduct Authority on value for money, and that the implementation is practical and proportionate, but the direction is right.

For insurers, guarantees are an important aspect of demonstrating value. So the clarification that guarantees should play a part in the value assessment is welcomed by
our industry, although the process of calculating the benefits and value received is complicated.

An actuary may not sign off on a scheme consolidating if they include certain guarantees as the members would be worse off if they consolidated and the guarantees are lost.

In these cases, it may be better if a scheme is allowed to wind up naturally. It is imperative that pension schemes provide good outcomes for members.

The government should also look at other measures for scheme consolidation, including
making bulk transfers without consent between occupational and contract schemes easier.

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