DC trust market continues to grow
The Pensions Regulator’s ninth edition of its survey of trust-based occupational DC schemes and memberships provides further evidence of the continued strong growth that has taken place in this market, with auto-enrolment being the principal cause.
The Regulator’s report shows that the number of trust-based DC members has increased significantly again – up by nearly 3 million members since last year’s report (see Pensions Bulletin 2017/05) to 12.6 million. Assets have increased by 22% this year reaching £48bn, whilst contributions have increased by 21% to more than £5bn.
In launching this report, the Regulator points out its key findings:
- 90% of people currently saving into a private sector pension are doing so into a DC scheme
- The reduction in the number of schemes continues. Since 2010 the number of schemes, not including micro or self-administered schemes, has reduced by 52% from 4,560 to 2,180
- Membership of master trusts has increased from 270,000 at the start of 2012 to almost 10 million in 2017
- As more people start saving into pension schemes for the first time, the average asset per membership has declined from £4,700 in 2016 to £3,900 in 2017
As in previous years the survey is based on information supplied via the scheme registration and scheme return processes and was extracted as at 31 December 2017.
Comment
The growth of DC pension membership and savings continues unabated, driven by auto-enrolment with master trusts increasingly the vehicle of choice. Indeed, the statistics in this survey about master trusts demonstrate how critical it is that the Government gets the new regulatory regime for them correct from day one (see Pensions Bulletin 2017/51).
What will be worth watching in future years is whether the average asset per member increases, to, say, £100,000. If the average pension pot remains at less than £5,000 (or even £20,000, say,) then many people will be disappointed when they reach retirement.
It is also worth putting these DC numbers into context. As the Regulator notes in its press release, there are more DC members than DB members (12.6m vs 10.5m) but the total assets in DB schemes continues to totally dwarf DC assets (£1,541bn vs £48bn). This suggests that there is still a long way to go before DC pensions begin to offer the same level of retirement income as DB pensions do.
Seeking guidance and advice – Government to overturn Lords’ amendment to the Financial Guidance and Claims Bill
The Lords’ amendment to the Financial Guidance and Claims Bill which would have nudged members to access Pension Wise guidance prior to making decisions relating to their pensions at retirement or on transfer is to be replaced in the House of Commons.
The Lords’ amendment, which the Work and Pensions Committee subsequently asked to be strengthened (see Pensions Bulletin 2017/52), had instructed the Financial Conduct Authority (FCA) to include a requirement for those running personal or stakeholder pension schemes to ask members or their survivors at the point at which they require access to or transfer of their pension assets, if they had received Pension Wise information and guidance. And, if they had not, it also provided that the FCA could then require the scheme to provide access to this before the individual could proceed.
The Government is now proposing to replace this with a requirement for the scheme to ask whether pensions guidance or independent financial advice has been received and, where the individual indicates that it has not:
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Recommend that such guidance or advice is sought; and
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Ask whether the individual wishes to wait until they have received such guidance or advice before deciding whether to proceed, or if they wish to proceed without having received it
A similar clause, introducing a new provision of the Pension Schemes Act 1993, is also proposed in relation to flexible benefits arising within occupational pension schemes.
The intention is that once the FCA has consulted on and finalised its approach for contract-based schemes, the DWP will produce regulations applicable to occupational pension schemes to fill in the detail. It is also intended that the Pensions Regulator will issue guidance on how occupational schemes should comply with the regulations and the FCA will issue guidance on how contracted-based schemes should comply with its rules.
Comment
Their Lordships had intended that individuals would be defaulted into a Pension Wise appointment (which they could decline) in the hope that individuals would be better protected against pension scams and unnecessarily high tax bills. The Government’s replacement is much weaker as it simply has the effect of encouraging individuals who are accessing or transferring flexible benefits to respond to simple questions about guidance/advice in a potentially two stage process. How effective this proves to be remains to be seen as, unless the rules or regulations in due course provide otherwise, silence from the individual seems simply to merely elongate the process before the scheme has to carry out the individual’s instructions.
NEST changes to go ahead
The response to the DWP consultation last November on allowing employers to contractually enrol workers into the National Employment Savings Trust after their staging date has been published. Unsurprisingly it concludes that the draft Order on which the DWP consulted is to go ahead unaltered.
The draft Order also contained some minor and technical changes (see Pensions Bulletin 2017/46), one of which relates to giving NEST Corporation the ability to close members’ pension accounts where they have been open for longer than 12 months and never received contributions. A respondent to the consultation suggested that NEST should also inform the associated employer before closing empty accounts. The Government welcomed this, but instead of adding it into the Order, the NEST Corporation has agreed to address this point when designing the processes nearer the time of implementation, consulting with their members and employers panels on the best approach.
Comment
As we commented at the time, these changes all seem straightforward and sensible. The Order should be laid before Parliament shortly and come into force on 1 April 2018.
PPF bridging pension anomaly resolved
The two-stage consultation on the PPF bridging pension anomaly has now concluded with the DWP publishing its response to both consultations and laying the regulations.
Last November the DWP decided, after the first consultation, that the best way forward was to replicate the key elements of a scheme’s bridging pension design directly into PPF compensation (see Pensions Bulletin 2017/48). Having now reflected on comments received on its revised approach it has settled the regulations on this basis after making a number of technical changes. These include a welcome replacement of the term “bridging pension” with “step-down pension” when describing the overall pension being delivered by the scheme. This in turn is divided into a “basic element” that continues for life and a “bridging element” that does not.
It appears that the PPF will provide for a limited continuation of 50% of the bridging element of the member’s step-down pension to a survivor. This does seem somewhat odd as this feature is rarely found in occupational scheme design.
The first consultation also looked at pensions that step up due to the operation of the GMP requirements. The DWP promises to look into this further once the changes made in respect of step-down pensions have fully bedded in, in particular saying that as it is a complex area, it is discussing with the PPF how best to gather the data necessary to help it better understand the scope, nature and extent of the problem.
The Pension Protection Fund (Compensation) (Amendment) Regulations 2018 (SI 2018/95) come into force on 24 February 2018 and will affect schemes whose assessment period begins on or after this date.
Comment
Overall this is a good result for the design of PPF compensation, with those British Steel Pension Scheme members who have elected to stay put likely to be first to be impacted.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
