Cleaning out the pension cupboard

Back  ofYou can think of company pensions like a comet. The fireball that catches the eye is created by schemes being used for auto-enrolment, behind the conflagration is a long tail that might start hot but peters out in a long-tail of cold rock attached only by a decreasingly potent gravitational pull.

A firm of trustees wrote to me about the tail.

The current concentration by the Government and the Pensions Regulator (TPR) on Automatic Enrolment (AE) has, perhaps inadvertently, caused many employers to carry out an audit of their current and past pension arrangements, primarily to establish if any of these can be used as an AE vehicle – a Qualifying Scheme.

In the process many employers are being reminded that they have “at the back of the cupboard” a whole range of old schemes which are not active but have members and assets under trust.

Schemes were often set up for senior employees in previous Revenue regimes to compensate for earnings caps or to contract out of the State scheme, or simply to replace schemes which were old fashioned and inefficient. For whatever reason they were created, schemes often remain in a paid up state when the purpose for which they were set up became redundant, and often some or all of the members no longer work for the employer.

Unfortunately, even if a scheme is paid up and inactive, with no current members, governance is still required and employers (who are often also acting as trustee) risk being fined by TPR if audited contribution schedules (even if they are nil schedules) are not provided annually, if scheme and member data is not current or member statements are not issued annually – amongst other seemingly irrelevant requirements.

It’s a curious state of affairs. At some point in the last twenty five years, these schemes were the apple of some HR manager’s eyes. They were the subject of a non-disclosure agreement, they were what kept consultants in work and formed an element of the strategic business plans of investment managers, third party administrators and the retinue of lawyers, communication specialists and auditors.

SSAS.FURB,UFURB,615 the list of these oddities is long and unedifying. Then they were cutting edge, now they are the stuff of PMI examinations and arcane pension legislation.

The odd thing about the message I got, was the phrase “seemingly irrelevant” which of course relates to the last thing on anyone’s mind, the member benefits.

It’s strange that once the commercial imperative passes , the money tied up in these schemes can only be seen as relevant because of the potential for the trustees to be fined.

It is small wonder that the Pension Regulator is calling into question the relevance of trusteeship for the majority of the 600,000 odd schemes registered as occupational dc plans in the UK.

In truth, unloved and unwanted, the benefits in legacy dc schemes (your and my money) are un-monitored, under invested in and unloved.

“They have sat there too long for all the good they are doing”

Now any sane person is going to look at these old schemes moldering away at the back of the cupboard as an opportunity. They contain real money, held for real people and whatever their original purpose that money is relevant.

The idea that the need for “governance” is “unfortunate” is spot on. Why should companies be shelling out of their profits to look after the money of employees who are long gone? Why should they risk fines for not doing so? Why shouldn’t these schemes be abandoned and their benefits distributed to the beneficiaries either in cash or as transfers to other pension pots?

The answer is almost always the same “legislation”. All of these schemes will have benefited at some point from some kind of tax-break, that’s why companies set them up. legislation is in place to make sure that the benefits don’t benefit from another set of tax-breaks. Lawyers, accountants, tax specialists, pension consultants and indeed the HMRC ,DWP and their enforcers the Pension Regulator and FCA all have very good reasons to make sure this money is not “released” from the stringent conditions that governed the schemes when they were set up.

And this suits all the commercial stakeholders. To the long list of intermediaries taking a cut of the action, we can now add another, the Professional Trustee, whose job it is to make sure that all the other intermediaries are doing their jobs properly. “Unfortunate” as it may be to have to pay someone to dust down the items at the back of the cupboard and test if they are still working properly, it is necessary because if the Regulator were to pay a call, you’d be for it.

This ridiculous state of affairs needs some top thinking applied to it. We have a new DC Regulator, the admirable Andrew Warwick-Thompson. Ironically most of his time is currently being spent stopping “pension liberation” by semi-fraudulent opportunists.

Meanwhile, the vast majority of the schemes under trust in the UK, this long tail DC legacy at the back of the comet, die a slow and lingering death from lack of love or at best the application of “unfortunate” governance. Seemingly irrelevant, these schemes are anything but to those who are their beneficiaries.

There is a need for an audit and there’s a need for a quick and easy process to return their assets to their ultimate owners- their beneficiaries.

If you were cleaning out your back cupboard and found some high maintenance valuables that were being allowed to rot away, you would be off to floggit, the anitques roadshow, your local auction house or the closest car-boot!


A useful job for the DWP would be to create the conditions in which, rather than requiring unfortunate governance, these schemes can be transferred into bigger trusts- mastertrusts – and be properly managed at a reasonable cost.

This may cause some head scratching among civil servants who will have to accept that some of the beneficiaries will get lucky and be given a dodgy tax-break, it will certainly annoy many of the advisers who enjoy a tidy annuity income from the various fees these legacy schemes generate, but it would be worth it.

If we are to have a trusted pension system where the employer provides the platform for retirement benefits, employers need to be released from the legacy of what has come before.

I call for a tax -amnesty on these schemes so that they can be wound up and transferred to those active schemes which are relevant , properly governed and governable by the Regulator. This would mean a wholesale clear-out of legacy legislation as part of the clean-out.

Perpetuating the current system only serves the pension industry and is not in the long-term interest of the tax-payer, employer or beneficiary.

Cleaning out the cupboard is a boring job , but it’s one that needs to be done as part of a wider move to restore confidence in pensions.

You can assess the value of your legacy pension scheme on by using our wonderful “let’s rate our pension” service.

About henry tapper

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