The Pensions Regulator’s “Dc Trust; presentation of scheme data, defines the state of the UK DC market” was published yesterday.
If we could use a single word to sum it up, that word would be “messy”. To take one statistic from the numerous spreadsheets attached, of the 33,640 schemes that tPR know about, only 750 are being used for auto-enrolment. There are around 70 active AE master trusts, which means under 700 single employer occupational DC schemes are auto- enrolling staff into workplace pensions.
The Regulator is defining the problem and putting forward solutions.
- The majority of these schemes are Small and self-administered(SSAS), typically for Directors looking to use pensions as part of their entrepreneurial activities. These are more properly tax and financing schemes, they re-allocate productive wealth by exploiting tax-subsidies, by tying this wealth into long-term investment, SSAS has played an important role for SMEs. The statistics suggest that few new SSAS schemes are being set up. It would be good to know more about this obscure part of the market, but for now we must put it to one side
- The redundancy of DC scheme structures set up by employers (with help from employers) is creating what the Pensions Regulator calls ” two classes of DC pension saver – those that benefit from the premium of scale and good governance and administration, and those that do not”
- The Regulator is looking for the private sector to consolidate the redundant structures into bigger active schemes by making life harder on small schemes, making bigger schemes more attractive and by abolishing the need for actuaries to be involved in the consolidation process (providing actuarial certification).
I agree with the Regulator’s assessment of the market, the call for consolidation and the remedial actions it is taking. Even though I represent a firm of actuaries, I am not sure the actuarial certificates we supply to ensure there is no detriment to members in consolidation are providing protections that cannot be achieved using existing regulation (treating customers fairly for instance).
As for the currently “ungoverned” schemes , we know that around 3,500 schemes failed to provide a timely Chair Statement last year. The Pensions Regulator knows who they are and should be organising the market to get these schemes to shape up or shape out. The Pensions Regulator organised an orderly exit for failing DB schemes and can do the same with this rump of derelict, redundant and dilapidating structures. Consultants form an orderly queue!
The reform of master trusts , using the legislation of the Pensions Bill, which we hope will be enacted in April, will make it easier for consolidation to take place. The question is not about what is happening with the good schemes, but what to do with the failing master trusts which are not achieving the master trust assurance framework or even the basic compliance to the DC code of conduct. DWP are talking about dishing these out to the good schemes on a kind of carousel. This looks like an exercise in value destruction. We think this can be done better through a proper brokerage where buyers and sellers can be matched – this is a small market that can be overseen by tPR but should not be run by it.
It is really encouraging to see the Pensions Regulator getting organised and producing a rational plan to raise all DC schemes to one level. The problems that exist elsewhere will probably require tPR to “let sleeping SSAS lie”, the provisions of the Pensions Bill make the consolidation of master trusts inevitable (though the process remains unclear); where most work is to be done is in impelling and perhaps compelling the trustees of the failing occupational DC schemes (probably less than 4000 of them) to let go.
The Pensions Regulator can use its powers to clean occupational DC pensions up. It will annoy some trustees and some advisors to see schemes swept away. But unlike small DB plans, which are typically loved and cherished by their sponsors, the small occupational DC plan is seldom even considered. We shouldn’t wait any longer, to echo Cromwell…
You have sat too long for any good you have been doing lately… Depart, I say; and let us have done with you. In the name of God, go!
Sadly, I wrote these words in another blog
which I see is dated July 2013. We need one nation DC – with all DC at the same high standards, I hope we do not have to wait another 40 months to get it!