The Pensions Regulator has warned against using “small” defined-contribution arrangements, high-charge legacy schemes, Sipps and SSASs for automatic enrolment.
Addressing the National Association of Pension Funds trustee conference in London today, TPR chairman Michael O’Higgins said the regulator wanted people to be auto-enrolled into large-scale schemes which can deliver low charges through economies of scale.
O’Higgins also said employers should not use “smaller schemes” to meet their legislative duties. The regulator says its definition of “small” covers schemes with between 12 and 99 members.
O’Higgins said: “The number of people saving into DC pensions is set to increase enormously as a result of automatic enrolment. The best outcome for these individuals is to be auto-enrolled into high-quality, value for money schemes, benefiting from scale and good governance.
“This simple truth is at the centre of our regulatory approach, and we will encourage the provision of schemes displaying the features necessary for good outcomes. More small schemes are not the answer, however.
“So 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 don’t 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.”
However, 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.
The issue of pension charges has moved up the political agenda in recent months, with Labour leader Ed Miliband and Shadow pensions minister Gregg McClymont calling for a 1 per cent cap on fees.
In October, pensions minister Steve Webb (pictured) told delegates at the NAPF conference in Liverpool he would publicly criticise insurance companies who allow savers to be auto-enrolled into “dodgy” legacy schemes.
Reacting to O’Higgins’ speech, Webb says: “We support The Pensions Regulator’s work to ensure people are automatically enrolled into high-quality, well-governed pension schemes. As our recent paper shows, there is much we can do to reinvigorate workplace pensions, and the issue of scheme quality is critical to achieving our objectives in this area.
“I look forward to working with the regulator to ensure providers offer the best possible pension products with the lowest possible costs, and support employers and scheme members in making the right choices for them.”
Hargreaves Lansdown head of pensions research Tom McPhail 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.”