Call for evidence should not be missed opportunity to improve Auto Enrolment standards for DB schemes – LCP

Today the DWP has issued a call for evidence on the way that Auto Enrolment quality standards are met for DB/hybrid schemes.

David Everett, Head of Pensions Research at LCP, commented: “This technical call for evidence is doing no more than asking whether the existing ‘alternative’ auto-enrolment tests of DB scheme benefit quality (including that introduced recently for CDC schemes) are working well. The short answer for DB is that they are; certainly against the more complex test scheme standard set out in the original auto-enrolment legislation. But, as with all these things, there can always be improvements.

“One of the drawbacks of the DB cost of accruals test is that it assesses scheme quality in two distinct steps – first by checking whether the scheme’s pensionable earnings definition is at least as generous as any one of the permissible “relevant earnings” definitions, and only if this test is passed, going on to check whether the contribution rate required to be paid is no less than the “prescribed percentage”. This can work against some schemes whose generosity is not in doubt, but who have a pensionable earnings definition that doesn’t match up to one of the DWP’s definitions. Making the test work for these schemes would be most welcome.”