Call for evidence on non-consent transfers from DC pension schemes

Call for evidence on non-consent transfers from DC

The call for evidence asks whether the Government should make changes to the requirements for non-consent bulk transfers from DC pension schemes.

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A bulk transfer of members’ accrued rights without their consent can be made from one Occupational Pension Scheme to another where certain conditions are met. The Government has published a call for evidence on whether the conditions are causing unnecessary burdens on Defined Contribution (DC) pension schemes and blocking consolidation of small pension pots.

For a non-consent bulk transfer to take place, an actuary must certify that the benefits to be acquired in the receiving scheme are ‘broadly no less favourable’ than the rights to be transferred. This can be a sticking point in bulk transfers from DC schemes because there is no definition of what is meant by ‘broadly no less favourable’.

The Department of Work and Pensions (DWP) accepts that the current test may not be suitable for DC schemes. The relative value of past service rights and transfer credits has its origins in Defined Benefit Pension Scheme bulk transfers. Other measures may be as, or more, appropriate in DC schemes such as governance, charges, investments and retirement options.

The call for evidence seeks views on whether the professional judgement of actuaries should still be the standard applied, or whether another type of ‘appropriately qualified independent person’ would be better qualified to assess the relative positions of the two schemes. Another option would be for technical guidance to be produced to allow trustees themselves to certify the transfer. It also asks for schemes' experience in DC to DC transfers, the time and cost involved, and whether there is sufficient clarity on the ‘broadly no less favourable’ test.

In addition to the actuarial certificate, a ‘relationship condition’ must also be met for a bulk transfer to take place. This basically means that the employees involved in the transfer are all employed (or were employed) by the same employer, or the transfer is a consequence of a financial transaction between two employers, e.g. a merger. Although this condition is not thought to cause as many problems as the actuarial certificate, the DWP is still interested in views as to whether it is likely to be a significant hurdle to the consolidation of smaller schemes.

The Government is seeking evidence on whether it should make changes to the actuarial certification requirement and/or the relationship condition, with the aim of reducing unnecessary burdens on schemes while still protecting members' best interests. The call for evidence closes on 21 February 2017 and the responses will be used to inform a consultation to take place later this year, with any necessary legislation anticipated for April 2018.

Note that the Government is concerned only with non-consent transfers from DC schemes. Defined benefit schemes are not included.

 

For further information please contact :

Simon Mayho

Andrew Scrimshaw

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