PLSA publishes responses to DC pensions consultations
The Pensions and Lifetime Savings Association has published its response to two consultations and one call for evidence relating to the Department for Work and Pensions’ defined contribution (DC) pension reform package.
- Scope: PLSA members support the intent to ensure savers are getting the best possible value out of the pension system. However, for the framework to be effective, it must bring into scope all schemes and providers in the market, including non-workplace schemes and consolidators, which tend to have higher charges.
- Data: The PLSA is also concerned about the total number of data points schemes providers may have to disclose in relation to charges and net performance under the proposals, the extent to which this is already covered by existing requirements (e.g. the Chair’s Statement) and how useful these will be in assessing value.
- Benchmarks: Another key issue is the practicality of the proposed assessments. Within such a diverse market, rigid assessments against regulator-defined benchmarks may make meaningful comparisons impossible or lead to herding. Schemes should be assessed against similar well-performing schemes, rather than abstract benchmarks.
Download the PLSA’s full submission to the Value for Money consultation here.
- No one solution: Multiple solutions are needed to resolve both the existing legacy pot problem and address future small pot creation. It is equally important to address both issues. A combination of different options is needed. The same scheme consolidation and member exchange solutions will be necessary in the short-term. Then a combination of solutions including a default consolidator model and improved saver engagement through pensions dashboards, in conjunction with other options, will be required to resolve the whole issue in the longer-term.
- Defining a small pot: The approach of defining a small pot between £1,000 – £10,000 proposed in the Call for Evidence does not take into account the fact that there are many pots smaller than this. At the higher end of the range, the Small Pots Co-ordination Group has previously considered solutions for pots in the range of £0 – £500, so we are surprised to see such high values proposed in the Call for Evidence.
- Micro-pots: The PLSA disagrees with the government’s decision to rule out micro pots (often defined as less than £100) being refunded. This option has the potential to directly address the short enrolment and reenrolment periods where evidence shows that small pots are created.
Download the PLSA’s full submission to the Deferred Small Pots call for evidence here.
- Saver protection: With the CDC in its infancy, it is important to establish a regulatory regime that prioritises saver protection, whilst also remaining flexible enough to allow new providers and innovative solutions to enter the market. Once established, there will be the basis from which to build employer and saver awareness in the CDC model.
- Regulatory regime: The PLSA supports the proposals to extend much of the existing regulations from the single-employer CDC regime to the multi-employer model, with some added components to ensure a reliable and safe market, e.g. capped target increases.
- Decumulation-only: PLSA members welcome the consultation’s consideration of decumulation-only models, which could provide a viable retirement income option for DC savers which is also compatible with the PLSA’s Guided Retirement Income Solutions proposals. Now is the time for potential providers to come forward with detailed models and demonstrate they can achieve the requisite scale to deliver a decumulation-only solution.
Download the PLSA’s full response to the CDC consultation here.
Nigel Peaple, Director of Policy and Advocacy, PLSA said: “Defined contribution pensions are becoming of increasing importance, with most people in the private sector saving into this type of scheme, and asset values expected to double over the next five to 10 years.
“It is very positive that the Minister for Pensions is focussing on DC pensions, first with her recent support for the Gullis Bill on reform of automatic enrolment to increase the amount of saving into workplace pensions, and now with the DC reform package covering value for money, CDC and small pots.
“To ensure savers are protected, it is essential that the new VFM regime applies not only to workplace pensions but also to personal pensions. We welcome the Government setting out a more detailed regime for CDC schemes so they can be used by multiple employers and for decumulation only. As for small pots, it is very important that a solution to this issue is developed as soon as possible.
“These are all complex issues, which will have different outcomes depending on the choices made; we urge the Government to give careful consideration to how they interact, and how they relate to other major initiatives at this time, such as the pensions dashboards project.”