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Pensions Regulator under fire over auto-enrolment ‘small’ DC stance

The Pensions Regulator has come under attack after chairman Michael O’Higgins urged employers not to use “small” defined-contribution schemes for automatic enrolment.

O’Higgins delivered a speech to the National Association of Pension Funds trustee conference in London on Tuesday warning against using small DC arrangements, high-charge legacy schemes, Sipps and SSASs for auto-enrolment.

The regulator says its definition of “small” covers schemes with between 12 and 99 members.

O’Higgins said: “I want to say explicitly today that, in our view, workers should not be automatically enrolled into smaller schemes which do not benefit from economies of scale, tend to be poorly run and do not deliver value for money in the charges they make to members.

“We also do not want to see auto-enrolment into legacy schemes operating on old administration platforms with higher charges and outmoded default funds, or into schemes that require a higher level of financial literacy such as Sipps or SSASs.

“The latter would put workers in the position of being the trustee of their own scheme.”

TPR says it does not have the power to impose a ban on schemes which meet the qualifying criteria set out in auto-enrolment legislation.

Hargreaves Lansdown head of pensions research Tom McPhail (pictured) says: “This is an ill-timed, knee jerk reaction to some of the messages that have been coming from the DWP and the FSA about pension charges.

“Making a pronouncement like this, after auto-enrolment has already started, gives the impression The Pensions Regulator is asleep at the wheel.

“I think The Pensions Regulator needs to rethink its understanding of collective contract-based arrangements and the value for money that can be delivered through a group Sipp.”

Helm Godfrey head of projects Steve Wood says: “Just because a scheme is ‘small’ in the regulator’s view, it does not necessarily follow that it is expensive or poor value-for-money for members.

“Most DC schemes invest in pooled insurance company funds which are typically low-cost and it is this cost that is usually borne by the scheme member.

“To suggest that smaller schemes are poorly-run is unfair and insulting to trustees of smaller schemes.”

Blackett Walker director Kevin Walker says: “To suggest a small scheme with matched contributions at a reasonable level, a large fund choice and a 1 per cent annual management charge is poor value for money in comparison to auto-enrolment minimums is farcical.

“If you continue to confuse employers the likely outcome will be that they will level-down to the legislative minimums which are clearly set out, which are in many cases substandard to their current scheme.”

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