The Department for Work and Pensions (DWP) is looking to consult on further regulations to DC consolidation and performance fees verification in the New Year, with the aim to bring in further regulation by October 2020.


Speaking at the PLSA Annual Conference today, 17 October, about performance fees, DWP senior policy manager, David Farrar, said the DWP recognises that there were issues with verifying charge cap compliance, which meant if people were invested for very short periods of time, and if this happened to coincide with excess performance, they would end up inadvertently breaching the cap in respect of those members.

"So we looked to lighten the load in the way schemes have to verify charge cap compliance. We say as long as members are invested for the whole year and not paid over 0.75 per cent regardless of the split between performance fees and annual management charges, then the scheme is compliant with the charge cap.

"We had generally a positive response to that and it has been seen as broadly proportionate and we will take that forward in the New Year."

Regarding DC consolidation, "we are painfully aware that we have around 3,500 DC schemes, with 2,300 with less than £10m in assets, and only 10 pure DC schemes with more than £1bn in assets", Farrar said.

"We are reaching consolidation in that top end but we still have that very long tail with small schemes, regardless of how strong their governance might be, with TPR’s evidence that it is not very strong. They have very little buying power and ability to do due diligence. So this is not to allow the larger schemes to gain scale; its more about giving access to those stuck in very small sub-scale schemes where their investment options are necessarily limited."

Farrar added that the DWP is ‘pausing’ on the statement of investment principles change that it consulted on last year, as “it does not want trustees to serve two masters; its duties are to their members, not to build national infrastructure”.

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