XPS calls for DWP to consider staggering requirements by size of scheme to improve member outcomes

XPS calls for DWP to consider staggering requirements by size of scheme to improve member outcomes

28 Oct 2020

XPS has responded to the DWP’s consultation on ‘Improving outcomes for members of defined contribution pension schemes’. It is calling for the government to consider staggering the requirements by size of scheme to ensure member outcomes really are improved.

The proposals set out more detailed guidance to ensure that DC Schemes meet existing standards – what is also new is that Schemes are being told if they don’t meet these standards they must wind up. The DWP also proposes that these requirements would only apply to schemes with less than £100m in assets, while schemes over £100m will be exempt.

Sophia Singleton, Head of DC Consulting, XPS, commented:

“The detailed guidance is helpful and whilst we agree with the principle of improving member outcomes, the DWP approach could have many unintended consequences.”

“The Government has a clear intention to drive consolidation. But the market may not have capacity to cope with so many schemes winding-up at the same time. This in itself may cause member detriment as schemes stop engaging with members and become zombie schemes waiting in line to be wound-up. We think a staggered approach is needed for the implementation.

“There is also a clear message that small schemes can’t deliver but large schemes do - this is not always the case.

“In our experience not all large schemes deliver the best member outcomes, whilst there are many smaller schemes that do. If the objective is to improve DC member outcomes then the requirements should apply to all DC schemes regardless of size.”