The Government will have to introduce new legislation if it wants to prevent employers setting up trust-based schemes to take advantage of refund rules, says Standard Life.
At a Headlinemoney event in London this week, pensions minister Steve Webb warned of the “regulatory arbitrage” created by employers launching trust-based schemes due to the ability to get refunds if employees leave within two years.
Webb said he was worried about the effect this would have on individuals who frequently move jobs. The Department for Work and Pensions will shortly be issuing a call for evidence to examine ways of addressing the issue.
Webb said: “We want to send out a very clear message that says we do not want people to end up with no pension because they get these refunds.”
Trust-based schemes allow employers and employees to get contribution refunds if the employee leaves within two years.
Providers including Legal & General, Xafinity and Standard Life, have recently launched or revamped master trusts in anticipation of the Government’s auto-enrolment reforms.
Standard Life head of pensions policy John Lawson says: “It is up to Steve Webb to legislate against it. That would kill the market off. I do not think wise words and guidance are enough because the market will do what the market does unless you stop it.”
Legal & General launched the WorkSave pension trust in November last year. An L&G spokesman says: “We launched the trust in response to employee demand. If the Government is going to change legislation, we would need to look carefully at why that was being done.”