The results of the DWP will allow to set out proposals for how a future legislative framework for authorising and regulating superfunds might work. Consolidation already happens across the pensions market in different ways, however, how schemes choose existing consolidation options will depend on their own specific circumstances.
Encouraging a well-regulated superfund sector may offer a more effective way of managing liabilities for some schemes.
Matthew Arends, Head of UK Retirement Policy, said: “The DWP’s consultation brings much-needed clarity on the direction of travel the DWP anticipates for these new consolidation vehicles. Having said that, in a number of key areas, the DWP put forward several options for the future, which means there remains considerable uncertainty over the regime consolidators will operate under. This in turn will make transactions difficult in the short term.”
Rhian Littlewood, Senior Consultant, said: “Interestingly, for the first time, the consultation brings the prospect of The Pensions Regulator regulating the sponsoring company as well as the pension scheme itself. Additionally, aspects of the regime for consolidators are much closer to that for insurance companies than for other occupational pension schemes. This adds up to TPR taking on a much more involved supervisory role in future.”
Arends concluded: “One aspect that we had expected to see in the consultation but isn’t there is the accurate communication of the consolidator proposition to potential transferring trustees and companies; it is crucial the risks and costs are transparently and accurately portrayed so that there is confidence in these vehicles.
“Related to this, there are no additional requirements to communicate with members prior to consolidator entry, other than the normal requirements for bulk transfers. Recognising that members will transfer without consent into the consolidator and that pensioner members will not be able to transfer out subsequently, we believe that additional member communications prior to entry that give more information about the consolidator vehicle will be essential.”
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