John Lappin is a great pensions reporter, I’m seeing him next week because I want to quiz him on his research for this article.
This is the nub of John’s article
Transfers, without member consent, have been allowed in the trust market since 2018 after amendments to the Occupational Pensions Schemes Preservation of Benefits Regulations (1991) and associated TPR guidance.
Now, as set out in the latest Mansion House pension reforms, announced in May 2025, and due to be enacted in the Pension Schemes Bill published in July, bulk transfers of GPPs without members’ consent will also be allowed.
John looks at GPPs and sees structures of individual contracts held together by employer contributions. described as workplace pensions but being no more than tax-efficient savings plans conveniently funded by payroll. The FCA are clearly concerned about Value for Money for savers who will be pensioners.
The FCA raised the issue in its consultation on the Value for Money framework in 2024. That paper said: “The Government may choose to explore legislative changes to enable providers to transfer pension savers without consent, internally or to another provider, with appropriate protections built into the process.” That is what is happening.
GPPs are awkward, when used as workplace pensions they offer freedom from pensions to people who will be seeing their personal pension appearing on pension dashboards as an income in retirement. Unless the personal pension offers an income then would be pensioners will have to buy an annuity, appoint an advisor to advise on cashflow management or do drawdown themselves.
Neither the staff or the employers are generally in the business of personal financial management. Put simply there is an expectation of a pension with no means to fulfil it.
Law firm Denton’s analysis of the bill included this summation. “The bill introduces a contractual override that enables contract-based pension providers to transfer pension pots out of underperforming and legacy arrangements without obtaining consent from each member if it is in the members’ best interests. Detailed rules on the use of the new regime will be developed by the FCA, including how a ‘best interests test’ is to be formulated.”
This is not quite fair on high quality GPPs such as those offered by life companies and the new wave of GPPs that have been set up since the outset of auto-enrolment in 2012. There problem is not VFM or member service (they can be very good) , their problem is that they can’t pay pensions.
If they are offering multi-employer workplace pensions they are also facing the impending Scale rules meaning they need to manage £10bn in 2030 and £25bn in 10 years time.
Is is any surprise that the owners of the GPPs are looking at authorised master trusts
“DC schemes appear to be increasingly using these provisions to consolidate into well-run arrangements, such as authorised master trusts.
“The processes for transfers without member consent enables consolidation where appropriate, but trustees and managers must still carry out robust due diligence and communicate clearly with members.
“We expect the upcoming value for money framework and broader measures in the Pension Schemes Bill to further support this ongoing shift.”
Can a master trust solve the problems facing all DC plans at retirement? Well yes they can absorb the GPPs through consolidation but what about that other requirement on all DC plans coming from the Pension Schemes Bill – that they offer a default solution to savers reaching “pension age” , with the default of a retirement income till they did – very much what the dashboard will say they are getting from their personal pension.
John’s argument is that employers will make decisions on legacy DC plans and bulk transfer to new plans. There are a variety of employee benefit consultants who contribute.
However this is no answer to most employers in GPPs for whom there is unlikely to be a willingness to pay substantial fees and advisers being unwilling or simply no longer trading.
I suspect that what we will see is the GPP providers taking action to stay in business. The mature ones will do so by buying into a mature master trust and getting to Scale by consolidation. Royal London look as if they are looking at purchasing NatWest Cushon to do this. The immature GPPs including Hargreaves Lansdown , True Potential and Penfold may sell their book of workplace personal pensions to a master trust. I Know of one workplace pension looking at becoming the Proprietor of a UMES CDC and transferring to that. This looks an opportunity to scale quickly and to use technology without legacy issues.
Most importantly, CDCs will not be subject to Scale assessment, they can build independent of a need to get big quick in terms of assets under management.
I suspect that it will not be employers who will call the shots but the GPP owners. It will be an interesting three or four years as we see GPPs , DC Master Trusts and now CDCs – vie for Scale.
John Lappin and I are going to have an interesting conversation next week!
John Lappin – freelance journalist
The problem with GPPs is they are not competitive.
The provider of the employee’s pension pot is chosen by the employer who has no further “skin in the game” unlike a DB pension scheme. Even while the employer is continuing to pay into a legacy GPP product, the employer has no interest in the performance of the product, let alone after the employee has left service. The employee has no influence on the choice of provider and is not able to switch provider whilst in service. It is a sham to say the member can deal with this by investment choice decisions under the terms of the contract as nearly all individuals are extremely ill equipped to make decisions that even full time investment specialists disagree on. Individuals therefore fall back on the default offered by the provider, who is under no competitive pressure leading to the widely varying long term results disclosed by the Corporate Adviser 2024 GPP default survey (5 year cumulative returns 30 years to retirement varying from 15.8% to 67.1% [GPPs])..
The lack of employer involvement and interest was highlighted by the DWP Employer Survey 2024 whose summary noted:
“The majority of employers had not switched or thought about switching pension provider (82%). Compared to 2022, employers were more likely to say that they had not switched provider and wouldn’t know how to switch (44% said this in 2024 compared to 38% in 2022). Almost half of employers who had not switched provider indicated they would not consider switching (46%).”
The key question is do DC Mastertrusts address these issues? There is exactly the same lack of continuing involvement by the employer selecting a Mastertrust provider. Although there are trustees managing investments they do not consistently achieve better long term returns than GPPs (indeed in some cases the same default fund is used) with the Mastertrust default range in the Corporate Adviser Survey 5 year performance ranging from 23% to 75.5%. With regard to self selection of investments by the Member, the intervention of Trustees appointed by the provider does not widen the choice or help the member select for her or his aspirations, circumstances, or needs. At least in the draft CDC regulations there is a clear separation of power of Trustees from the provider, we will have to see how that works out as the pressure may be on the existing GPP and Mastertrust providers to provide a CDC offering.
When the member leaves the confines of the employer selected provider, the interest of both the GPP and Mastertrust provider is to retain the funds. Once again the individual is left with making a decision without meaningful support, even if he does recognise he is making what may be a life changing investment decision, and will tend to leave the funds with the original provider or possibly in some cases move to the product chosen by a new employer. In Henry’s blog I do not need to emphasise the issues at time of retirement.
To me it appears that defined benefit pension provision addresses all these issues. The employer remains involved even after the employee has left service and has statutory consultation rights over trustee investment decisions. After all in an open DB pension scheme, the trustees are managing a pool of the employer’s assets ring fenced to pay defined pension benefits to its past, present and future employees. The employer is therefore looking over the trustees shoulders to ensure that the pension fund achieves the best “value for money” in respect of the assets held and contributions paid in. As a result it appears that DB pensions require something like 50% lower contributions to provide an equivalent pension benefit to DC.
Members have the security of a defined pension benefit and are not faced with having to make any investment decisions.
It is extremely regrettable and at great cost to the UK Economy that for the past 30 years or so, the opportunities offered by DB pension provision have been completely ignored by legislation and regulations entirely focused on risk, whether those risk were real or imaginary or unrealistically assessed. Consider:
• The Companies that have failed due to excessive short term deficit recovery contributions and risk based PPF levy contributions.
• The losses sustained by companies whose pension schemes only considered buy-out through an LDI strategic adopted at a time of negative real gilt yield.
• The loss of pensioner income by the loss of inflation protection of pre 1997 pensions and the consequential increase in the cost of means tested benefits in later life.
• The loss of profit from UK investment funds to overseas insurers and their owners through the bulk purchase of annuities, when over-priced.
• The excess bureaucracy forced on employers, trustees, service providers to guard against risks that are likely to only affect a few and could be managed in the isolated occupancies at much lower cost.
• The losses to the economy arising from investment policies focused on short term risks rather than productive investments jointly considered by trustees and employers.
• The tax loss from unnecessary contributions being paid to both compensate for the inefficiencies of the present system and also the desire by those who can afford to avoid tax by increasing contributions.
All these losses were and continue to be unnecessary.
CDC may provide a viable alternative to DC, but as a nation we must consider the opportunities it offers and not be blinded by perceived risks, possible inequalities, or seek to over-regulate.
However, to my mind at least, employer sponsored Defined Benefit pension provision remains the most efficient method of pension provision at most benefit to the Country. I hope the Pensions Commission will at least consider these matters as vested interests still seek to dominate Government thinking.
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