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Increased DC regulation will hit smaller schemes, says Aegon

Aegon has warned the Pensions Regulator that an increase in regulation for DC schemes could discourage work-based pensions provision, particularly among smaller firms.

In its response to the Pensions Regulator’s consultation on proposals to expand its regualtory duties in the DC sector, Aegon warns that the current focus fails to address the real risks members face.

It says the biggest factors affecting the size of a DC member’s
pension income are making the wrong investment choice, paying
insufficient contributions or opting out of the scheme altogether, and making the wrong choices at retirement. Some of these risks fall into the gap between the current FSA and Pensions Regulator remits but Aegon suggests they could be solved by financial capability measures, such as education in schools and in the workplace, rather than increased regulation.

Aegon believes the Pensions Regulator needs to do more work to
understand the real risks members face and to wait for the outcome of
other industry initiatives such as the Thornton regulatory review before taking action.

It argues increasing regulation and liabilities for employers for all types
of DC schemes could lead to unintended consequences such as
discouragement from providing work-based pension arrangements above the minimum requirements. Smaller employers, it claims, are likely to be hardest hit as increased regulation and liability is a disproportionate cost for them.

Head of pensions development Rachel Vahey says “The real risk a DC
member faces is making the wrong choices in their pensions lifetime. Increasing regulation may only lead to employers turning their backs on work placed arrangements. The Pensions Regulator needs to take a step back and look at the bigger picture before taking any action.”

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