Time to get tough on “dodgy” pensions – the Regulator speaks

English: Steve Webb MP makes a speech at the L...

English: Steve Webb MP makes a speech at the Liberal Democrat Autumn conference 2008. (Photo credit: Wikipedia)

Regular readers will know that I have for a few months been expecting and calling for a strengthening of the DWP’s stance on what makes for “good” and what kinds of pension scheme should Qualify for auto-enrolment.

I did not expect a position as radical and definitive as that laid out by the Pension Regulator; this from Professional Pensions yesterday 04/12/12

Speaking at the NAPF trustee conference, TPR chairman Michael O’Higgins said small DC and legacy schemes are unlikely to display the  regulator’s six principles and features of good DC and should not be used for  auto-enrolment.

He said small schemes do not benefit from economies of scale, while legacy  schemes include higher administration costs that eat into members’ pension  pots.

O’Higgins said: “The best outcome for individuals is to be auto-enrolled into  high-quality, value for money schemes, benefiting from scale and good  governance.

“This simple truth is at the centre of our regulatory approach, and we will  encourage the provision of schemes displaying the features necessary for good  outcomes. Most small schemes are not the answer, however.

“So I want to say explicitly today that, in our view, workers should not be  auto-enrolled into smaller schemes which do not benefit from economies of scale,  tend to be poorly run and do not deliver value for money in the charges they  make to members.”

O’Higgins added: “We also don’t want to see auto-enrolment into legacy  schemes operating on old administration platforms with higher charges and  outmoded default funds; or into schemes that require a higher level of financial  literacy such as self-invested personal pensions or small self-administered  schemes.”

The comments come after pensions minister Steve Webb pledged  to prevent auto-enrolment into “dodgy” schemes.

O’Higgins said TPR would adopt a ‘comply or explain’ approach for DC schemes  to adhere to its six principles of good DC.

He also mooted the idea of a quality ‘flag’ that allows employers to choose  pension schemes with confidence and would help alleviate concerns people could  transfer pots into low quality schemes under pot-follows-member.

Quality Flag is DWP speak for a kitemark (they can’t say kitemark as the word has been purloined by the BSI).

I’m hoping that the six principles of Good DC refers to the good paper published by the Regulator in Jan 2011, not the messy nonsense that followed (about governance).

Check out this link for details of what the Quality Flag should signify.

Already this morning, my inbox is full of protests from IFAs and product providers. Try this from a concerned employer

Hmm. What about the small schemes that aren’t crap. Am I supposed to close our current GPP that charges 0.3% and put all my employees in NEST? And what about the SIPP providers that have invested in supporting AE – will Stagecoach have to ditch their GSIPP? Sounds like a very blunt policy instrument to me. Surely some charging limits to be an equivalent scheme would be a better approach.

Calm down! The Regulator has 1,200,400 firms to regulate. He’s not coming after you or Stagecoach or BT – all of whom offer SIPPs to those who want them.

The point is this, if you are new to driving, you do not buy a Ferrari (unless you are a donut). If you are new to pension saving- you do not use a SIPP (unless you are a donut).

I am happy with the Regulator, pleased that the DWP are getting tough on bad practice and showing the kind of teeth the FSA has never done.

Bravo Mr O’Higgins!




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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