The DWP has today signalled that it means business when it comes to consolidation in the DC market in new material that has been published. 

The government’s a Call for Evidence on the Future of the DC market is notable because of the statement of belief that there will be only 1,000 (non-micro) DC schemes in five years’ time but that this is still too many and scheme consolidation should be further accelerated.

Tim Box, Senior Consultant in LCP’s Pensions Research team, said:

“This public announcement of the government’s intended upper limit on the number of DC schemes is an explicit signal, if one was needed, that it means business and that we can expect further initiatives to force consolidation of DC schemes.”

This Call to Evidence was published alongside the DWP’s response to recent consultations aimed at improving outcomes for members of DC pension schemes. The new legislation is aimed at tackling poor governance where it exists and to ensure that trustees act in the best interests of their members. Its aim is also to remove barriers to smaller schemes investing across a broad range of assets including illiquid assets such as venture capital and increase transparency. It will also require schemes with assets below £100 million to report on how their scheme presents value for members (VFM) around costs, charges and investment returns.

Commenting on this Tim Box added:

“We now have clarity around which DC schemes will be required to publish value for members assessments. It will only apply to schemes with less than £100 million of total assets including both DB and DC and only the DC element of the scheme must be assessed.

“This will automatically exempt many hybrid schemes from the new rules, although we agree with the government’s suggestion that larger hybrid schemes with small DC sections might find it useful to voluntarily adopt the new assessment to check VFM for their DC members. 

“Pushing back the implementation date to the end of 2021 does give schemes a few extra months to gather the necessary data. The good news for schemes that will have to deliver these assessments is that the first scheme year it applies is that ending after 31 December 2021.  We also welcome the government’s sensible proposal that schemes which would otherwise have been in scope of the new assessment will not be if they have properly notified TPR that they are in the process of winding up – this is sensible in order to avoid additional costs."

Stephen Budge, Principal in LCP’s DC team, commented:

“We are glad that the government has heeded industry concerns about the administrative headaches that 'Look through’ cost requirements are for investment trusts and other listed and close-ended funds and are going to take more time before announcing their revised position by next Summer. "