Government to remove administrative barriers to bulk defined contribution pension transfers

The government has proposed removing the requirement for trustees to obtain an actuarial certificate before they can complete a DC to DC transfer without member consent. It also intends to remove the 'scheme relationship' condition, which limits the circumstances in which transfers without consent can take place to those where there is a relationship between the employers using the transferring and receiving schemes.

The existing requirements were designed for transfers out of defined benefit (DB) schemes, according to an earlier government consultation on the proposals. The draft regulations instead introduce new member protections more suited to DC schemes, including maintaining existing charge cap protections for members whose pensions are transferred without consent.

Pensions expert Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law.com, said that the proposals in the government's consultation were "sensible" and "have members at their heart".

"Neither the actuarial certificate requirement nor the scheme relationship condition is effective in assessing the suitability of a transfer involving pure DC benefits," she said. "Removing these requirements will mean that suitability is more likely to be assessed in ways that will better reflect members' interests."

The consultation closes on 30 November 2017.

Pension schemes may seek to bulk transfer members' accrued rights for a number of reasons; for example, to consolidate two or more separate pension schemes operated by the same employer, or to transfer members from a single employer scheme to a master trust. They can do so without seeking the consent of scheme members where certain conditions are met, and only where explicitly provided for by the scheme rules.

The draft regulations would give effect to proposals consulted on by the government last year and apply to 'pure' DC to DC transfers, meaning those where there are no potentially valuable guarantees or options requiring actuarial assessment. They would replace the need to obtain an actuarial certificate and the scheme relationship condition with more appropriate member protections.

The nature of these protections would depend on whether the receiving scheme is authorised under the master trust regime. If it is, trustees would only be required to act in the best interests of the scheme members, in line with their existing fiduciary duties. The Department for Work and Pensions (DWP) will consider the need to develop some further guidance for trustees on how to review the suitability of the receiving master trust.

If the receiving scheme is not an authorised master trust, the trustees of the transferring scheme would be required to seek advice from a professional who is independent of the receiving scheme. They would also be required to review the receiving scheme in line with their responsibilities under trust law, with the assistance of appropriate guidance to be developed by the DWP or The Pensions Regulator.

The draft regulations would also require the receiving scheme to continue to apply the automatic enrolment default fund charge cap in respect of members of a transferring scheme where the charge cap applies. Members would continue to be protected by the charge cap even if they are later switched into any other funds, provided that this is done without the member making an active choice.