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Regulator warns against using ‘small’ DC schemes for auto-enrolment

Steve Webb 480 NAPF 2012

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.”


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There are 27 comments at the moment, we would love to hear your opinion too.

  1. How many more times can the FSA or The Pensions ‘Regulator’ kick IFA’s?

    thanks guys, and Merry Christmas to you too!!

  2. What nonsense is this? So are there two layers of qualifying criteria? Exactly how would an employer know the difference?

  3. What, so the regulator will now tell employers who they can and cannot use for their employees pension provision? What next a state regulated press – it’s all turning a bit “orwellian” for my liking!

  4. 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 can be delivered through a group Sipp.”

    Tom, Where I dont disagree with the knee jerk accusation….. I think going on to tell everyone what great value a SIPP is, given the company you represent is an obvious sales ploy! I think we all have to be careful which pension wagon we hitch ourselves up to otherwise this knee jerk reaction may become justified.

  5. Perhaps employers might need some form of guidance or, dare I say it, advice.

    Now either the esteemed gentleman might offer said advice or somebody more capable, qualified and able.

    Let me think whom that might be…

  6. At the time smaller employers are waking up to their obligations, this statement is made!

    Offering advice is hard enough but when the goalposts are moved it makes it nigh on impossible.

    Auto enrolment is now real yet there are still so many unanswered questions as to how it will in fact work in practice….

  7. Why tno SIPPs? Many are simply deferrred SIPPs. We have GPPs. Group Stakeholder and GroupSipps available for different employers we deal with based on the make up and anticipated needs of the employers. The Group SIPPSs default funds are the same as the GPPs and GSPPs and the AMC’s are the same UNLESS self investing.
    This blanket statements especially at the last minute do nothing for helping employers and employees understand what is and is not fair and reasonable.
    I can understand not allowingt auto-enrolment in ti old legacy schemes, but surely if a GPP or GSIPP gave the stakeholder expemtion as ALL our employer schemes did/do, then surely there should be a line they can draw to say the same for autoenrolment plans!
    Next thing they’ll be telling us you can’t auto enrol clients in to group stakeholders as the fund choice isn’t wide enough, there is no with profits smoothing and the charges are too high!

  8. The issue is simple, the pensions regulator wants to destroy personal pensions, sipps, ssas’s etc and place everyone into the NEST so that they maintain control and once they have that, they can take away Tax Free Cash and tax relief.


  9. Are you kidding!
    This industry is simply impossible to do any kind of sensible business in.

  10. If there was any doubt that the government or FSA/FCA wants IFA’s from 2013.

    Well here is your answer !!

  11. freedom of choice? Democracy?

    My money, maybe I just want to put it where I want to!!!!!!!

    Dare I say it, this advice is a worry!

  12. So what they are saying is that employees of small companies have no choice but to use NEST?

    One way of ensuring take up and then claiming what a resounding success it has been.

  13. Kevin Walker, Blackett Walker Ltd 4th December 2012 at 4:27 pm

    BARKING MAD! Making sweeping statements such as this without backing it up with a definition of a small scheme is confusing at best for employers who have current schemes in place. To suggest a small scheme with matched contributions at a reasonable level, a large fund choice and a 1% 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 and in many cases substandard to their current scheme.

  14. Just another measure to encourage opting out and then freeing firms and individuals to do what they feel is best for them:

    Single premiums
    Extensive fund choice
    Decent asset allocation
    Or just nothing at all.

    Small firms are like small IFAs – they hate being dictated to, they want ‘their own’ schemes and don’t want to be agglomerated into someone else’s mega scheme.

    The UK still purports to be a democracy, but daily we are seeing measures more redolent of the Politburo, than the fee choice Laissez Faire we brought up to expect. And all this under a Tory PM. Heaven help us when the other lot get in – it will make China look liberal.

  15. I wouldn’t touch any of this with a bargepole anyway. A fast road to ruin, paved with hassle

  16. it might be worth taking a deep breath on this and enquiring whether tPR meant GPPs or DC

  17. So, the only suitable scheme TPR thinks is any good, is one where I can’t transfer my money to another provider if it transpires that the provider they’ve chosen for me, turns out to be an absolute dog. No matter how insanely bad it could turn out to be, I have to leave my funds there.

    Great. I’ll have to think about that……


    The text of the speech is at this link. He says nothing about banning anything

  19. “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.”…so we warn against but can’t do anything about it?

  20. Why would anyone touch NEST with a bargepole. When you go on to the NEST official website it is being described as “Award Winning” – what ??? When did it win award and from whom exactly. Anything touched by government usually turns into a bloody mess. And if you want the worst value-for-money, unfair to the point of being criminal, ppension scheme – look no further than the State pension.

  21. “Labour leader Ed Miliband and Shadow pensions minister Gregg McClymont calling for a 1 per cent cap on fees.”
    Sounds like the old stakeholder set up, and you know the restrictions that this style of scheme has produced,restrictedmainly to Internal funds /lack of choice.

  22. In other words this is a regulation attempt to compete against the market in favour of a high charge NEST scheme because they are worried the charge won’t come down.

    Hence also the automatic transfer of pots without advice. NEST is struggling to make the sums add up so the government is fixing the market.

  23. I do think an older politician needs to put a hand on Mr Webbs shoulder, take a deep breath and have a nice cup of tea.

    Labour did sum sums and thought NEST could be achive after 10 years an amc of 0.3%. Maybe Steven Labour didn’t get their sums right. If it ends up being 0.4 or 0.5% then thats fine, there is a market out there that will compensate.

    What we don’t want is to automatically transfer peoples pension pots and grabs schemes of 100 lives or less without regard to advice or competition or existing regulations just to make Labours sums add up. We might end up with a pensions scandal and that doesn’t go down well with voters.

    And by the way stop slagging off the industry.

  24. I can see where TPR is going with this but is it not a bit out of touch?

    NEST will I’m sure be fine, notwithstanding no track record, indeterminate charges and no clear financial stability but all firms have to start somewhere.

    My biggest concern is how the mixed messages continue to emerge from the various agencies involved here. Governments aying one thing, TPR another and FSA something different. Just as an example, NEST contravenes TCF outcomes as costs cannot be determined and there are barriers to exit.

    Steve Bee is great on these issues, why oh why do we not get qualified and experienced people involved at a high level on this stuff rather than playing politics with our futures?

    I won’t even mention public/private sector pensions apartheid!

  25. Alistair Paterson 5th December 2012 at 9:57 am

    I have GPP’s that meet the new legislative requirements and shall continue to use them under my old commission based and existing and updated IDD and client agreements, as permitted.

    However, as for NEST, there is no way I am offering anyone advice on a scheme that seems to me to be most likely candidate for the “Loss of Pension Credit” misselling scandal in the making.

  26. How much does Mr Michael O’Higgins earn per year I suspect it is well in excess of £200,000 and he is saying that IFA’s have to work for free. You’re not related to Hector Sants by any chance and I wonder what company has offered you a lucrative package after your tender is finish putting all of the IFA is out of business leaving big organisations to mop up all of the business. I wonder if you will end up head of may be NEST in a few years time.

    While I’ve got news for him we work in a commercial world and advice has to be paid for somewhere along the line so afraid he either gets a reality check or there will be nobody to give advice left in the industry as we will have all gone bust chosen or have chosen to specialize in other areas.

    My advice to Mr Michael O’Higgins is to think before you actually open your mouth because what you’re asking IFA is to do is to commit commercial suicide.

  27. In this artical it states it is best for the the investor to be in Auto Enrolment, this sounds like advice to me.

    if it goes t… up either by charges or investment quality or administation c…. ups will the investor have the right to claim via FSCS?

    IFA’s take cover

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