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Govt considers DC ‘quality thresholds’ for auto-enrolment

Steve Webb 480 LibDems DWP

The Government is considering introducing “quality thresholds” for defined contribution pensions as part of efforts to ensure people are not auto­matically enrolled into poor-value schemes.

The Department for Work and Pensions is currently looking at ways to ensure people receive good value for money from their auto-enrolment pension scheme.

In November, the DWP published a wide-ranging policy document, entitled Reinvigorating Workplace Pensions, outlining how it thinks saving could be made more attractive.

The paper explores a number of policy options, including forcing any scheme which does not meet certain efficiency standards to merge with another scheme, and encouraging the development of scale in occu­pational pensions provision.

Addressing the work and pensions select committee last week, pensions minister Steve Webb said: “Quality is the key.

“We have to make sure people are enrolled into schemes of good enough quality.

“If small schemes cannot meet whatever quality definition or thresholds we have, they will not be able to continue.

“So you should not be able to be auto-enrolled into a scheme that is not [good quality] or auto-transferred into a scheme that is not [good quality].

“Once we have defined what that means, it may well be that small schemes cannot meet those standards and they would combine with other schemes or the scheme members [would] get moved into other schemes.

“My sense is the market will get us some of the way there in terms of consolidation but not all of the way, so we probably will be setting standards that will lead to further consolidation,” the minister said.

Syndaxi Chartered Financial Planners managing director Robert Reid says: “A lot of trust-based schemes set up in the 1980s and early 1990s will struggle to meet any good quality test.

“This could potentially be a big problem for old trust-based pension schemes.”

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  1. Re-inventing the wheel again – we already have a quality mark for DC schemes! It’s called Pension Quality Mark.

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