Pensions regulator issues auto-enrol warning for small DC schemes

The Pensions Regulator has issued a warning to employers and trustees of the 4,000 defined-contribution schemes with fewer than 1,000 members that they may not be considered suitable for automatic enrolment.

In an interview with this week’s Money Marketing, TPR chief executive Bill Galvin (pictured) says the regulator will look at whether “sub-scale” schemes can meet the requirements. He says: “One area we will be focusing on is the large number of schemes that might be sub-scale in a DC context. There are about 4,000 schemes with between 12 and 1,000 members. Our view is it is difficult to be a significant player in the pension market if you have less than 1,000 members.

“We would expect trustees of very small DC schemes to ask themselves very serious questions about whether it is possible to meet our six principles for good provision if they have fewer than 1,000 members. If it is not, it may be that they are not the right vehicle for an employer to use for auto-enrolment.”

National Association of Pension Funds director of policy Darren Philp says: “I agree that scale is vital in DC and there needs to be consolidation in the market but I do not think you can have a specific cut-off point.”

Galvin also reveals the regulator plans to provide relief to defined-benefit schemes struggling to pay off growing deficits. He says TPR will make a statement in April outlining measures to reduce the impact of tumbling gilt yields on pension scheme deficits.

Following the Bank of England’s £50bn round of quantitative easing last week, the NAPF urged the regulator to set out how it will help pension funds cope with the impact of low gilt yields resulting from the eurozone crisis and QE.

Galvin says: “We are investigating a number of possible options to ease the burden on defined-benefit pension schemes. We are going to make a statement in April because the majority of schemes have valuation dates at the end of March.”