PLSA publishes responses to raft of Mansion House consultations
The Pensions and Lifetime Savings Association (PLSA) has published its responses to the ‘Helping Savers Understand their Pension Choices’ and ‘Ending the Proliferation of Small Pots’ consultations, and the ‘Pension Trustee Skills, Capability and Culture’ and ‘Options for Defined Benefit Schemes’ calls for evidence.
Helping Savers Understand their Pension Choices
- The PLSA has long argued for a policy solution to protect savers who don’t engage with their at-retirement choices from poor outcomes. We strongly support the government’s proposals, which share many of the key components of our Guided Retirement Income Choices (GRIC) framework, including a statutory obligation on all DC trustees to support their members and offer them, directly or via partner, a suitable retirement solution.
- This duty is also an important component to protect trustees in designing a suitable solution for their members.
- The DWP is consulting only on a duty to provide at retirement products and services, and the proposals do not consider what communications and guidance savers should receive. These are essential elements of a saver’s retirement decision making, even with a soft default. Therefore, we ask that these elements, which are an important pillar of our GRIC framework, are brought forward as soon as possible.
- The government’s intention to legislate as soon as time allows is especially welcome.
The PLSA’s full response to the ‘Helping Savers Understand their Pension Choices’ consultation is available here.
Options for Defined Benefit Schemes
- DB pension schemes are keen to have a range of options as to how they provide and secure the pension scheme benefits of their members, especially in cases where they are closed to new accrual and are approaching the “DB end game”. The PLSA, therefore, supports options that provide more flexibility under the TPR DB funding code for their investment decisions.
- The PLSA supports the Government’s proposal to establish a statutory basis for the regulation of DB Superfunds. DB schemes also welcome the option of using existing channels such as DB Master Trusts and buy-ins and buyouts via an insurer. As many as 44% of our members are in favour of more flexibility for surpluses to be returned to sponsors – but only in circumstances where the benefits of scheme members are secure, e.g., where a scheme, at a minimum, meets the Pensions Regulator’s “low dependency” funding level and additional safeguards are in place.
- Overall, PLSA members do not currently support the creation of a public “consolidator” of DB pensions, given the lack of evidence of a market failure. They also believe it is better that PPF continues to operate as a successful compensation scheme. We believe it is too early to opt for a public sector solution given that the private sector DB Superfunds have not yet been placed on a confidence-enhancing statutory basis nor have reforms to Solvency II which might alter the options within the buy-in and buyout market.
- If PPF is given a role as a public consolidator, we believe it should only operate for parts of the market, e.g., smaller schemes, that cannot easily get a buyout or buy-in solution from an insurer or cannot move to a DB Mastertrust. If further market analysis indicates this type of vehicle is necessary and viable it should also set up a separate fund and operate independently from the current PPF so as to avoid inappropriate cross-subsidy between schemes and members.
The PLSA’s full response to the ‘Options for Defined Benefit Schemes’ call for evidence is available here.
Pension Trustee Skills, Capability and Culture
- Among large schemes, trustees not only know and meet the knowledge and standards expected of them, but they also have the right knowledge and understanding to invest in the full breadth of available investment opportunities.
- However, evidence from recent TPR surveys as well as research undertaken by the PLSA indicates that although larger, well-resourced schemes are generally considered aware of (and meet) required trustee standards, smaller, less-resourced schemes in many cases do not. We ask TPR to undertake more in-depth research on this important issue.
- The PLSA believes that TPR should review and strengthen its Trustee Knowledge and Understanding (TKU) toolkit – which is not considered sufficiently demanding – and consider offering additional guidance or continuing education opportunities for practicing trustees who have already completed TKU.
- The PLSA would like to see the creation of a register of trustees. Collecting this information would serve several purposes, including determining who currently serves as a trustee (either professional or otherwise), any gaps in knowledge and understanding among trustees (and trustee boards) of different scheme type, and what additional support might be needed from TPR. By introducing a register of trustees and a stronger TKU regime, it would be possible to introduce a form of “accreditation” for all trustees.
- As for professional trustees, we believe the bar should be stretching and tougher than current standards. Together with tougher TKU, governance standards would be further improved.
- To ensure that the advice affecting decision-making is always appropriate, we continue to call for the FCA to extend regulation to investment consultants who advise pension schemes and that the DWP do more to explore the decision-making role of employers, as advised by Corporate IFAs, and how this affects the investment offering in schemes.
- More generally, we believe there are a series of reasons why pension funds do not invest more in illiquid assets, some due to the nature of the scheme and investment time horizon, e.g., as is the case for closed DB schemes, and some due to the operation of the pensions market for DC schemes, e.g., the tendency of the AE market to focus on low cost schemes. The PLSA set out its assessment of how to increase pension investment in UK growth in its recent report, ‘Pensions & Growth: Support for Pension Investing in the UK’.
The PLSA’s full response to the ‘Pension Trustee Skills, Capability and Culture’ call for evidence is available here.
Ending the Proliferation of Small Pots
- The PLSA is pleased the Government is seeking to address the important issue of how to reduce the number of small pension pots that result from automatic enrolment into pensions. The PLSA and wider industry has done a great deal of work on this issue with the intention of achieving better outcomes for savers.
- The Government has proposed that the Multiple Default Consolidator be the model for small pot consolidation. There are pros and cons with this option, as there are with all the options, and these will only become fully clear when the planned next phase of more detailed work is undertaken.
- Though the Clearing House option is preferred by the Government, the PLSA would rather it consider other options, such as a blended option of a Clearing House with Central Registry features. Whilst in theory a Clearing House has the potential to reduce administrative burden on employers and reduce the risk of errors, in practice it is not clear that this would be the case in the UK context.
- The proposals suggest two alternative ways of allocating small pots where an individual does not make a decision. We believe there are issues of concern with each approach and ask that the DWP consider some alternative approach based on the following principles: savers in mind; healthy market; and pension awareness. The chosen option should also have administration and implementation costs at the forefront. This will ultimately determine whether it is in the best interest of members to consolidate.
- The authorisation and requirements on future default consolidators have yet to be established in full, though we agree that a standard will be needed to protect savers. Many pension schemes and providers have found it hard to evaluate the proposals in this consultation due to uncertainty about the Government’s ultimate vision for the automatic enrolment landscape, especially regarding the number of mass market pension schemes.
- The amount at which a pot is considered to be ‘small,’ and the definition of ‘deferred members’ may have knock-on effects to interconnected administration and infrastructure factors, such as the cost of transfers. The Government has proposed a maximum pot size of £1,000 whereas the PLSA and industry coordination group previously preferred a maximum pot size of £500.
- It will be critical for industry to be involved in the next stages of the initiative, and for this reason we are very supportive of the launch of a Delivery Group, the mandate of which should include the design principles and implementation of the default consolidator framework.
The PLSA’s full response to the ‘Ending the Proliferation of Small Pots’ consultation is available here.
Nigel Peaple, Director of Policy and Advocacy at the PLSA, said: “With its package of consultations over the summer, the Government put forward an ambitious set of proposals to deal with some of the key issues facing pensions.
“As the number of savers with substantial defined contribution pots at retirement is set to grow significantly over the coming years, it is especially welcome that the Government is seeking, at the earliest opportunity, to establish a legislative solution to protect savers from the risk of making poor decisions. We believe our Guided Retirement Income Choices proposals provide the blueprint for the way forward and urge policymakers to consider the important part guidance and communications play in the overall solution for savers.
“Given the improvements in defined benefit funding levels and the higher interest rate environment, now is a sensible time to explore whether and how to ensure the significant weight of capital these funds manage is deployed as efficiently as possible in the interests of pension savers. Some of the proposals put forward by Government on defined benefit schemes are worth examining further, others less so. In all cases it is imperative that the regulatory safeguards that protect savers pension benefits are not compromised.”